Merck & Co, Schering-Plough Demonstrate Contrasting Profits During Q3

Financial figures for the third quarter and nine months ended 30 September 2009 have been released by U.S. firms Merck & Co and Schering-Plough. Merck & Co, the larger of the two, reported robust growth figures for the third quarter, with a 2% year-on-year (y/y) growth to US$6.04 billion and net income up by a huge 207% y/y to US$3.45 billion. The latter surge in growth is primarily attributed to the gains made from the sale of its animal health business Merial to Sanofi-Aventis (France). In terms of operational expenditure during the third quarter, Merck & Co maintained its tight hold on costs apart from a slight increase in research and development (R&D). For the year-to-date, or nine-month period, Merck & Co has reported a drop in sales to US$17.33 billion, driven by both a dip in U.S. sales and the impact of foreign currency exchange-rate fluctuations. With a 13% y/y increase in R&D costs, operational margins were lower. Net income ended positively with a 4% y/y growth.

Revenues from Merck's joint ventures reported lacklustre growth. The firm's cholesterol drug alliance with Schering-Plough reported lower sales on account of the continued impact of efficacy studies comparing the products to the off-patent simvastatin. The trend of sales decline stabilised in November, 2008, but seems to have picked up. The Sanofi Pasteur-MSD (France) alliance has not fared well either. Sales of key products, such as cervical cancer vaccine Gardasil (human papillomavirus quadrivalent—types 6, 11, 16, 18- recombinant vaccine) which gained approval in 2006, registered a 51% y/y drop in revenues. Rotateq (rotavirus vaccine), however ended with sales 35.4% y/y higher, along with flu vaccines.

Schering-Plough, on the other hand, ended the third quarter with disappointing falls in both topline and bottomline results. Sales ended lower at US$4.49 billion, while net income dropped by 16% y/y. Sales of prescription pharmaceuticals for the same period reached US$3.5 billion, with unfavourable foreign currency exchange-rate fluctuations wiping out the 6% operational growth registered. The cost structure was tighter, with cost of sales, and selling, general, and administrative expenses lower than the previous year. This helped lift the operating income, which registered a 24% y/y growth. However, despite a higher operating margin, net income ended lower. For the nine-month period, however, net income ended higher, reflecting the firm's strength in its core business and product portfolio.

Product Performance:

For Merck & Co, the diabetes portfolio contributed to growth, with Januvia and Janumet reporting 30% and 72% y/y growth in the third quarter. The continued success of this franchise will play a central role in the future growth strategy of the firm. In addition, Emend (aprepitant), Isentress (raltegravir), and Zolinza (vorinostat) also reported higher sales growth. In the vaccines portfolio, shingles vaccine Zostavax and hepatitis vaccines offset some of the drop in sales from Gardasil. Cozaar (losartan), Cosopt (dorzolamide and timolol), Crixivan (indinavir), Fosamax (alendronate), Primaxin (imipenem and cilastatin), and Proscar (finasteride) reported lower sales on a shrinking demand and intense generic competition.