- The Washington Times - Tuesday, April 21, 2009

TRENTON, N.J. (AP) - Drugmakers Merck & Co. and Schering-Plough Corp., preparing to combine, both posted first-quarter sales declines Tuesday as the global recession and the stronger dollar weigh on an industry already weakened by growing generic competition.

Much-larger Merck, which is buying Schering-Plough for $41.1 billion in a move that will make it the world’s No. 2 drugmaker, turned in a far worse performance. An array of problems forced Merck to reduce much of its 2009 financial forecast, drew critical analyst reviews and sent its shares down nearly 9 percent at one point.

Schering-Plough beat analysts’ forecasts _ by 9 cents per share _ and tripled its profit thanks to cost cutting in the latest quarter and a large acquisition charge a year earlier.

Merck’s global revenue was down 8 percent and Schering-Plough’s by 6 percent, even though Schering, which has far more sales overseas, took a much bigger hit from the dollar’s strength.

“Today’s results, highlighting the revenue growth and cost savings that (Schering-Plough) provides, once again shows the value that the acquisition will bring to (Merck),” Credit Suisse analyst Catherine Arnold wrote to investors.

Despite slumping sales and repeated rounds of job and cost-cutting, the two companies and their rivals are profitable _ more stable and less hurt by the recession than most other industries. But drugmaker share prices are way down compared with earlier in the decade, when a golden era of constant double-digit profit increases ended.

Now analyst Steve Brozak of WBB Securities sees continued “mediocre performance, sales down, people getting fired, cost reductions” across the industry.

“We could be talking about more of the same for years now, not months,” he said.

Merck shares closed down $1.68, or 6.7 percent, at $23.65, while Schering-Plough finished down in trading Tuesday.

Analysts called Merck’s performance “disappointing” and “relatively weak.” It missed forecasts for many key drugs, including allergy medicine Singulair, two vaccines and even its heavily promoted new diabetes drugs, Januvia and Janumet, analyst Seamus Fernandez of Leerink Swann noted.

Whitehouse Station, N.J.-based Merck reported first-quarter net income of $1.43 billion, or 67 cents per share _ 74 cents, excluding one-time charges. That was down 57 percent from $3.3 billion, or $1.52 a share, a year ago, when results were buoyed by a one-time, $2.2 billion gain.

The maker of the Gardasil vaccine against cervical cancer reported revenue of $5.39 billion, down 8 percent.

Analysts polled by Thomson Reuters were expecting 77 cents per share and $5.77 billion.

Fernandez and Arnold said Merck put future revenue in doubt by delaying plans to seek approval this year for a new migraine drug after a patient study showed possible liver damage. Arnold wrote that the drug, telcagepant, was “widely seen as the company’s largest near-term pipeline opportunity.” Analysts had forecast peak sales of about $1.1 billion per year.

Merck said the strong dollar and generic competition for former blockbuster osteoporosis drug Fosamax pulled down sales by 3 percent each.

Merck said the second half of 2009 should be better, as it expects an end to wholesaler cutbacks and a return to normal shipping on some vaccines plagued by production problems.

Still, sales of the cholesterol drugs Vytorin and Zetia, which Merck markets jointly with Schering-Plough, continue their year-long downward slide. They plunged another 23 percent in the quarter to $945 million, amid continuing questions about effectiveness and safety.

Kenilworth, N.J.-based Schering-Plough, the maker of arthritis treatment Remicade and allergy spray Nasonex, earned $767 million, or 46 cents per share. That compares with profit of $276 million, or 17 cents per share. Revenue fell to $4.39 billion _ about $4.9 billion counting its share of the cholesterol drugs.

Excluding charges, the company earned 56 cents per share. Analysts forecast profit of 47 cents and revenue of $4.56 billion.

Both companies said their tie-up remains on track, with financing recently completed, expected to close in the fourth quarter. The deal is structured as a reverse merger that will make Schering the surviving company, but keep Merck’s name _ an attempt to preserve about $2 billion a year in revenue Schering-Plough gets through a partnership with Johnson & Johnson on the rheumatoid arthritis drug Remicade.

Clark, the Merck CEO, declined to comment on whether J&J; might enforce contractual change-of-control provisions that could strip that revenue from Schering-Plough.

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