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AstraZeneca Collaboration Edges Up Merck's Q1 Sales Growth
22 Apr 08
U.S. pharma major Merck & Co. has reported marginal sales growth for the first quarter of 2008 but profitability has doubled, owing to the US$2.23-billion income figure received from its joint venture with U.K. firm AstraZeneca.
Global Insight Perspective | | Significance | Merck's operating and net income were higher at 17% and 94%, respectively, bolstered by a surge in earnings from collaborations. | Implications | A US$2.23-billion income figure from product collaborations and cost-cutting measures helped prop up sales for Merck, despite the loss of its Fosamax patent this quarter. | Outlook | Merck has maintained its full-year guidance, with Singulair and Gardasil expected to drive topline growth. |
Merck & Co. has posted a 1% year-on-year (y/y) sales growth rate to US$5.82 billion for the first quarter of 2008. The firm's U.S. sales suffered a decline by 6%, hurt by the impact of the Fosamax (alendronate) patent expiry. Worldwide sales provided strength to topline growth, accounting for 34.4% of overall sales. Cost-cutting measures featured as one of the key elements contributing to expenditure, with material and production costs down markedly by 19% y/y, while R&D and marketing expenditure were up 5% and 3%, respectively. Merck & Co.: Selected Results, Q1 2008 | | | (US$ mil.) | % Growth Y/Y | Sales | 5,822.1 | 1 | U.S. Sales | 3,296 | -6 | Foreign Sales | 2,526 | 12 | Material & Production Expenditure | 1,238.1 | -19 | Marketing and Administrative Costs | 1,854.4 | 3 | R&D Costs | 1,078.3 | 5 | R&D as % of Sales | 18.5% | 0.6pp higher | Operating Income* | 1,651.3 | 17 | Operating Margin | 28.36% | 3.6 pp higher | Net Income | 3,302.6 | 94 | Source: Company/Global Insight
*Sales minus material & production, marketing & administrative and R&D costs |
Profitability for the company has almost doubled, favourably affected by earnings from three joint ventures (JVs). A complex distribution deal with U.K. firm AstraZeneca enabled Merck to gain US$2.23 billion for four products—Atacand, Lexxel, Plendil, and Entocort. Other JV collaborations with Schering-Plough (U.S.) and Sanofi-Pasteur (France) together contributed US$1.64 billion. Merck & Co. Joint Ventures, Q1 2008 | Product | (US$ mil.) | % Growth Y/Y | Schering Plough | | | Zetia Sales (Total) | 581.7 | 6.93 | Vytorin/Inegy Sales (Total) | 651.2 | 4.39 | Total Schering-Plough JV Sales | 1,232.9 | 5.57 | Sanofi Pasteur-MSD | | | Gardasil | 239.8 | * | Viral Vaccines | 22.7 | 12.93 | Hepatitis Vaccines | 18 | 7.78 | Other Vaccines | 130.9 | 2.42 | Total Sanofi Pasteur JV Sales | 411.4 | * |
In terms of product sales split, again a clear divide between U.S. sales of top products and worldwide sales were witnessed. Among the products facing significant pressures in the U.S. market included Fosamax, Zocor, Cancidas, Crixivan/Stocrin, and Proscar, with generic competition affecting sales. Rotateq, Januvia, Janumet, and Isentress provided boosts, registering growth of more than 100%. However, key products Cozaar and Singulair have demonstrated marginal shifts in performance. Vytorin and Zetia, which are the subject of industry debates relating to Merck's ENHANCE trials, have edged up in sales, mainly as a consequence of a 5.5% rise in prices in the United States, according to Bloomberg. Merck & Co.: Product Breakdown, Q1 2008 | Product | Total Sales (US$ mil.) | % Growth Y/Y | U.S. Sales (US$ mil.) | % Growth Y/Y | Cozaar/Hyzaar | 847 | 6 | 299 | -2 | Fosamax | 470 | -37 | 202 | -58 | Singulair | 1104 | 10 | 714 | 1 | Zocor | 179 | -31 | 28 | -60 | Vaccines: | | | | | Gardasil | 390 | 7 | 293 | -6 | Rotateq | 190 | * | 179 | * | Zostavax | 74 | 72 | 73 | 72 | Other Viral Vaccines | 226 | -8 | 202 | -11 | Hepatitis Vaccines | 34 | -53 | 25 | -59 | Other Vaccines | 73 | -21 | 29 | -55 | Other Reported Products: | | | | | Arcoxia | 93 | 16 | - | N/A | Cancidas | 149 | 11 | 30 | -22 | Cosopt/Trusopt | 201 | 8 | 81 | -3 | Crixivan/Stocrin | 75 | -9 | 4 | -36 | Emend | 60 | 25 | 40 | 12 | Invanz | 55 | 33 | 28 | 25 | Isentress | 47 | * | 30 | * | Januvia | 272 | * | 228 | * | Janumet | 58 | * | 55 | * | Maxalt | 122 | 13 | 79 | 11 | Primaxin | 203 | 3 | 51 | -16 | Propecia | 105 | 10 | 37 | 1 | Proscar | 85 | -32 | 3 | -88 | Timoptic/Timoptic XE | 29 | 1 | 2 | -13 | Vasotec/Vaseretic | 96 | -21 | - | N/A | Zolinza | 4 | 72 | 4 | 61 | Source: Company
*100% or over |
Outlook and Implications The quarterly performance is a modest start to the year, particularly in terms of U.S. sales. Profitability over the course of 2008 is expected to be boosted by further gains from the AstraZeneca collaboration, which Merck has estimated will bring in US$1.3-1.5 billion. In terms of product sales forecasts, Singulair and Cozaar is expected to top the table. Gardasil will remain one of its top revenue-growth performers, accounting for close to 40% of overall vaccine sales. However, the company expects Vytorin and Zetia sales to drop by US$700 million in the full year—a reflection of the impact of ENHANCE study concerns and the sales and marketing practices adopted for that drug. Merck & Co: Forecast, 2008 | | | 2008 Forecast | Singulair | US$4.6-4.8 bil. | Cozaar/Hyzaar | US$3.4-3.6 bil. | Gardasil (as Recorded by Merck) | US$1.9-2.1 bil. | Other Vaccines | US$2.9-3.1 bil. | Fosamax | US$1.3-1.6 bil. | Other Reported Products | US$7.8-8.2 bil. | AstraZeneca Royalties | US$1.3-1.5 bil. | Equity Income for Affiliates (inc Schering-Plough and Sanofi-Pasteur JVs) | US$2.3-2.6 bil. | Marketing & Administrative Expenses | 77.5%-78.5% | R&D Expenditure | US$4.7-4.9 bil. | Costs Related to Site Closures | US$100-300 mil. | Reported Earnings-per-Share (EPS), FY 2008/09 | US$3.84-4.00 | Source: Company |
Currently, the company is aware of 115 civil class action lawsuits and an alleged class-action lawsuit filed by a Merck shareholder against the firm's top management. Regarding Fosamax litigation costs, Merck has increased reserves by US$40 million, bringing up the total to US$100 million. Restructuring measures are set to continue into the forthcoming quarters, with costs related to site closings at US$100-300 million. Related Articles - United States: 14 April 2008: U.S. Congressional Panel Scrutinises Vyotrin Study Minutes
- United States: 1 April 2008: Congress Accuses Merck, Schering-Plough of Withholding Bad ENHANCE Results
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