Tuesday demonstrated once again that it knows how to sell a drug or two.
The nation's second-biggest drugmaker posted a 14% rise in fourth-quarter earnings, putting it in line with analysts' forecasts of 75 cents a share. Revenue rose 28% to $11.4 billion.
The results weren't much of a surprise, since Merck in recent months said it would likely post earnings of 73 to 76 cents a share for the fourth quarter, up from 68 cents a year earlier. Not all analysts were impressed, however, and shares fell 3% by midday, dropping $2.56 to $79.75.
cut earnings forecasts and slashed its rating to accumulate from buy, saying Merck couldn't sustain the outperformance of the last two quarters. "We no longer see a consistent pattern of earnings outperformance," said Merrill analyst Steve Tighe in a note. "The top-line fundamentals were strong, but gross margins were slightly below our expectations."
Still, Merck's performance -- it is the first of the big drugmakers to report earnings this month -- demonstrates once again that demand for drugs is strong and that the major drug companies constitute something of a safe haven against the kind of volatile earnings streams demonstrated by cyclical or tech stocks. And analysts say there's more to come from the Merck marketing juggernaut, even as it faces major patent expirations and refuses to merge in the fashion of industry rivals
"Merck's late-stage pipeline and marketing prowess bode well for managing patent expirations," said
Morgan Stanley Dean Witter
in a recent note. The firm rates the stock outperform and advises Merck.
Fat of the Land
Fourth-quarter sales of Merck's star cholesterol-lowering drug Zocor surged 14% from a year ago to $1.5 billion, fueled by widespread advertising and a beefed-up sales force that permitted the company to wage hand-to-hand combat with Pfizer in the high-stakes cholesterol-cutting market. And there's more room to grow for both companies, with the market for such "statin" drugs growing at a stellar 20% a year. Merck says more than half of the people who should be taking cholesterol medicines are still untreated.
And its four other "growth" products were no slackers. In particular, sales of Vioxx, the popular arthritis drug, surged 14% from the third quarter, to $700 million. The drug, a member of the new "Cox-2" class of arthritis treatments, was launched last year and now holds half the market for such drugs, with the other half dominated by Pharmacia's Celebrex. Vioxx generated a whopping $2.2 billion in 2000 sales, making it one of the fastest-growing drugs in industry history.
The Merck-Pharmacia competition is likely to get stiffer, with Merck likely to gain
Food and Drug Administration
permission in coming months to sell Vioxx as a treatment that's easier on the stomach than naproxen, a generic painkiller. The change could help it in its marketing battle with Pharmacia, since Celebrex already is sold as a stomach-friendly drug.
Among the other top-five Merck growth products, sales of blood pressure medicines Cozaar and Hyzaar surged 29% from a year ago to $530 million. And Singulair, a once-a-day pill for mild to moderate asthma, saw sales rise 44% to $245 million, while sales of osteoporosis drug Fosamax gained 9% to $315 million.
The Merck results demonstrate that a bolstered sales force, aggressive direct-to-consumer advertising campaigns, cost controls and effective drugs translate into earnings growth for drugmakers. And the performance is expected to continue, albeit at a slightly reduced rate this year this year, with Merck Tuesday expressing more "comfort" with analysts' EPS forecasts of $3.15 to $3.25 for 2001. That's at least an 8.6% gain over 2000's EPS of $2.90.
Merck is in the process of dealing with the mostly inevitable earnings decline that afflicts drugs that go off patent, which in Merck's case include heart medications Vasotec, Prinivil and Mevacor, and ulcer drug Pepcid. In response, the company said last December it will add some 1,500 representatives to its sales force over 18 months and speed new drugs to market.
"Income growth for the quarter and the year reflects strong worldwide sales volume gains, as well as manufacturing productivity improvements," said Raymond V. Gilmartin, chairman, president and CEO. "These gains helped fund our ongoing research and development programs and promotional campaigns in support of our key products."