Merck sees 1st-quarter sales rise but profit fall sharply on Schering-Plough purchase charges

Merck 1Q sales rise but profit fall on charges

Drugmaker Merck & Co. said Tuesday double-digit sales growth for a half-dozen of its top medicines and favorable currency rates fueled a 7 percent jump in first-quarter sales, but large charges for its November deal to buy Schering-Plough Corp. pulled profit down sharply.

Despite that, Merck handily beat analyst expectations and Wall Street pushed up its share price in return.

The maker of asthma and allergy pill Singulair and cholesterol drugs Vytorin and Zetia reported earnings of $298.8 million, or just 9 cents per share.

A year earlier, before Merck’s megadeal to buy Schering-Plough for $41 billion, Whitehouse Station, N.J.-based Merck reported a first-quarter profit of $1.43 billion, or 67 cents per share, on revenue of $5.39 billion.

The new Schering products added $5.4 billion to sales, so revenue more than doubled to $11.42 billion compared to Merck’s stand-alone sales in the first quarter of last year. Sales in the just-ended quarter also were boosted 4 percent by favorable currency exchange rates.

Excluding charges totaling $2.31 billion, or 74 cents worth after taxes, Merck would have earned 83 cents a share. Analysts surveyed by Thomson Reuters expected, on average, earnings per share of 75 cents and revenue of $11.18 billion.

“Our merger is already producing positive results,” Chief Executive Richard T. Clark told analysts during a conference call. “We are focused on driving revenue growth, maintaining the momentum of the business and reducing our cost structure.”

That included eliminating about 5,000 jobs from the combined company during the first quarter to bring the work force down to about 95,000, from about 106,000 right after the deal was announced last March.

The company said it expects earnings per share this year of $1.15 to $1.50, including roughly $2 per share in one-time charges, and 2010 revenue of about $46 billion. Excluding the items, income is pegged at $3.27 to $3.41 per share.

Analysts expect earnings per share of $3.41 and revenue of $45.83 billion, on average. The estimates usually exclude one-time items.

The company said it is still on track to reach its goal of $3.85 billion in annual savings in 2012 from combining the companies.

Clark said the company already has integrated its sales and marketing operations in 12 of its top 20 global markets.

Merck previously reported that the U.S. health care overhaul, which required increased rebates to the government for drugs bought through the Medicaid program, will reduce its revenue by about $170 million this year and $300 million to $350 million next year — less than some rivals have been reporting. During the first quarter, it took a charge of $146.5 million for elimination of a tax credit for retiree health plan benefits, also part of the health overhaul.

“We continue to believe that overall, it will have a positive impact,” Clark said, by eventually giving more patients access to Merck medicines and vaccines.

Merck’s prescription drugs business brought in $9.79 billion. It was led by Singulair, up 10 percent to $1.2 billion; and Remicade for rheumatoid arthritis and other immune disorders, up 30 percent to $674 million; diabetes drugs Januvia and Janumet, up more than 20 percent each at $511 million and $201 million, respectively. However, sales were down for Merck’s biggest vaccine, Gardisil for blocking the human papilloma virus, and the related blood pressure drugs Cozaar and Hyzaar just got generic competition and saw sales dip 7 percent to $782 million.

Its animal health business posted $709 million in revenue and the consumer products unit, which had been part of Schering-Plough, had sales of $379 million.

In early trading, Merck shares rose 93 cents, or 2.6 percent, to $36.20, one of only three gainers on the Dow Jones industrial average.