Merck Worth $41 on Solid Growth, Cost Controls

NEW YORK (Trefis) -- Merck (MRK) recently declared its results for the first quarter. A lot happened during this quarter that can potentially impact the company's ongoing business. During this period, it reported uniform growth across all segments with better cost control and gains from certain nonrecurring items ensured net earnings jump of nearly 67% from $1.07 billion to $1.77 billion.

The noteworthy nonrecurring items were $500 million gain related to resolution of the arbitration proceedings with Johnson & Johnson (JNJ) and $134 million gain on sale of certain manufacturing assets. If we analyze the results excluding the nonrecurring items and restructuring costs, the results are still encouraging with almost 9.1% growth in earnings compared to same period last year.

Merck operates in four segments namely, pharmaceutical, animal health, consumer care and alliance segment and competes with other health care companies like Pfizer (PFE), Johnson & Johnson and Abbott Labs (ABT).

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Sales of HIV drug Isentress increased from $292 million to $337 million in the first quarter of 2012, showing a growth rate of 15%. In January 2012, Merck received FDA approval for Isentress for use in children older than 2 for HIV therapy.

The company reports Isentress revenue as part of anti-infectives segment. It is a very important drug for Merck, given that it earned revenue of $1.4 billion in 2011 and showed historical growth rates of 25% and 45% in 2011 and 2010, respectively. With this approval, we expect Isentress to be a major source of prospective revenue for Merck and to improve market share in that segment. The anti-infectives segment contributes over 25% to the company value.

Janumet sales increased from $305 million to $392 million in the first quarter of 2012, showing nearly 29% growth. In February 2012, Janumet got FDA approval for use in type 2 diabetes. It is a once-daily treatment to control blood sugar. This will help Merck strengthen its already formidable position in alimentary and metabolism drugs segment, which contributes nearly 20% to the company value. We expect Merck to gain market share in this segment going forward.

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