IHS Global Insight Perspective | |
Significance | Operating income showed a drop in both fourth-quarter and full-year figures, reflecting the higher cost structure as a result of the acquisition. Net income, on the other hand, soared by more than 100% in the fourth quarter, and 64% for the full year. |
Implications | Merger and restructuring costs primarily contributed to the higher expenditure. The firm has announced the first phase of a new global restructuring programme to push integration and optimisation through the organisation. Savings of US$2.6–3 billion are being targeted. |
Outlook | The firm's focus this year will be to maximise cost efficiencies, and this could see more job losses as rationalisation continues. Merck has indicated that it is still targeting earlier set savings estimates for 2011 and 2012. |
U.S. pharma major Merck & Co has reported financial figures for the fourth-quarter and full-year period ending 31 December 2009 indicating a robust rise in its topline, with total sales up by 67% and 15% in the respective periods under review. The results are the first for the combined unit following the acquisition of and merger with Schering-Plough (U.S.) initiated last year. Given the impact of the merger—which includes a US$7.5-billion pre-tax gain, merger-related expenses, and restructuring costs—the data may not compare with the stand-alone Merck's results from last year. In terms of expenditure, as expected, higher cost of sales, marketing and administration, and research and development (R&D) expenses were reported, as Schering-Plough's operations are also included. The fourth quarter included US$2.3 billion of additional costs related to purchase-accounting adjustments. Costs associated with restructuring programmes for that period stood at US$19 million.
Merck & Co.: Selected Results | ||||
Q4 2009 | 2009 | |||
US$ mil. | % Growth | US$ mil. | % Growth | |
Total sales | 10,093 | 67 | 27,428 | 15 |
Human health | 9,072 | - | 25,2536 | - |
Cost of sales | 4,900 | * | 9,018 | 62 |
Marketing and admin (SGA) | 3,455 | 86 | 8,543 | 16 |
R&D | 1,971 | 42 | 5,845 | 22 |
R&D as % of sales | 19.55% | 3.35 pp lower | 21.3% | 1.2 pp higher |
Operating income** | 233 | -82 | 4,022 | -33.9 |
Operating margin | 2.30% | 19.4 pp lower | 14.6% | 10.8 pp lower |
Net income | 6,524 | * | 13,024 | 64 |
Source: Merck & Co/IHS Global Insight **IHS Global Insight calculation based on sales minus cost of sales, SGA, and R&D expenses. | ||||
Operating income, however, displayed the pressures of the cost structure by reporting falls of 82% and 33.9% for the fourth-quarter and full-year periods. Net income, however, reflected the positives of the merger, with a more than 100% rise in the fourth quarter, and 64% in the full-year period.
The restructuring also indicated some changes in the company's categorisation of products. As evident from the table below, the firm has included legacy brands from Schering-Plough that have boosted product sales. Also, the firm has now categorised those products going off-patent under "Mature Brands". The blockbuster brands are Singulair, Cozaar, Gardasil, ProQuad, Fosamax, and Januvia
Select Product Sales (GAAP Figures) | ||
Products | Q4 2009 | Full Year 2009 |
Bone, Respiratory, Immunology and Dermatology | ||
Singulair | 1,260 | 4,660 |
Remicade | 431 | 431 |
Nasonex | 165 | 165 |
Fosamax | 285 | 1,100 |
Clarinex | 101 | 101 |
Propecia | 123 | 440 |
Arcoxia | 98 | 358 |
Asmanex | 37 | 37 |
Cardiovascular | ||
Zetia | 399 | 403 |
Vytorin | 384 | 441 |
Integrilin | 46 | 46 |
Diabetes and Obesity | ||
Januvia | 558 | 1,922 |
Janumet | 202 | 658 |
Infectious Disease | ||
PegIntron | 149 | 149 |
Isentress | 234 | 752 |
Primaxin | 196 | 689 |
Cancidas | 175 | 617 |
Avelox | 66 | 66 |
Invanz | 88 | 293 |
Rebetol | 36 | 36 |
Crixivan/Stocrin | 52 | 206 |
Mature Brands | ||
Cozaar/Hyzaar | 955 | 3,561 |
Zocor | 139 | 558 |
Claritin Rx | 71 | 71 |
Vasotec/Vaseretic | 85 | 311 |
Proscar | 72 | 291 |
Proventil | 26 | 26 |
Neurosciences and Ophthalmology | ||
Maxalt | 156 | 575 |
Cosopt/Truspot | 134 | 503 |
Remeron | 38 | 38 |
Subutex/Suboxone | 36 | 36 |
Oncology | ||
Temodar | 188 | 188 |
Emend | 88 | 313 |
Caelyx | 47 | 47 |
Intron A | 38 | 38 |
Vaccines | ||
ProQuad, MMR II and Varivax | 333 | 1,369 |
Gardasil | 277 | 1,118 |
Rotateq | 135 | 522 |
Pneumovax | 128 | 346 |
Zostavax | 76 | 277 |
Women's Health and Endocrine | ||
Follistim/Puregon | 96 | 96 |
Nuvaring | 88 | 88 |
Other human health | 781 | 1,295 |
Animal health | 494 | 494 |
Consumer health | 149 | 149 |
Claritin OTC | 39 | 39 |
Other revenues | 379 | 1,548 |
Total sales | 10,093 | 27,428 |
Source: Merck & Co | ||
Restructuring Programme
The firm announced the start of the first phase of a new global merger restructuring programme. Merck is to reduce its total workforce by 15% across all areas globally, from its current employee count of 100,000. The first phase will see 2,500 vacant positions being eliminated from the sales, and administrative sectors, with consolidation of certain manufacturing and research facilities. The phase is expected to be completed by the end of 2012 with pre-tax costs estimated at US$2.6–3.3 billion.
Outlook and Implications
The new combined Merck is shown to be stronger both in topline and bottomline growth, and clearly also in its product and geographical presence. However, the acquisition has indicated some cost inefficiences which the firm will be hard pressed to resolve over the next few years. It is significant to note that even before the first phase of restructuring was announced, the firm had decided to rationalise its operations and "trim the fat". However, it appears that despite these efforts, its expenditure soared in terms of growth, with the combined figures of Schering-Plough. In terms of product-wise performance, the firm's blockbuster list will be expanded by the addition of Schering-Plough's portfolio, including six products over the US$1-billion annual sales mark. The firm will also be benefit from an enhanced presence in the respiratory and cardiovascular segments particularly. With the new combined structure revealed, Merck will look ahead to consolidate the remnants of Schering-Plough's operations further into its operations. The year ahead will see integration towards maximising the product portfolio, as well as the production strengths of the acquired firm. Following this, the firm is expected to announce further job losses, as has been indicated in the merger restructuring programme. Over the next two years, Merck is expected to register savings of US$2.6–3 billion annually as a direct result of the restructuring programme.