Merck & Co Posts Lower Sales Growth in 2008

U.S. pharma major Merck & Co has registered a drop in sales growth in the fourth quarter and full year ended 31 December 2008, at 3% and 1% respectively. U.S. sales suffered falls of US$3.3 billion and US$13.37 billion respectively for the same periods, while foreign sales seem to have made positive and rising contributions to topline growth. In terms of expenditure, marketing and administrative expenses rose in the fourth quarter by 8% year on year (y/y), while research and development (R&D) and cost of sales have witnessed drops in growth.

Operating income for the two periods under review were mixed, with the fourth quarter showing a sharp drop in income at 17.7% y/y, and the full year at 8.3%. Net income for the full year was influenced by a pre-tax gain of US$2.2 billion on a distribution from AstraZeneca (U.K.), while fourth-quarter net earnings compared to a net loss in the year ago period. The fourth-quarter 2007 figures reflect a US$4.85-billion pre-tax charge related to the Vioxx (rofecoxib) settlement agreement.

In terms of product performance, Januvia/Janumet, Isentress, Zolinza, Maxalt, Emend, Invanz and Cancidas posted strong growth in sales. In the vaccines portfolio, Zostavax and Rotateq took the lead, with double-digit sales growth in the full year period. However, cervical vaccine Gardasil disappointed, with a 16% drop in sales during the fourth quarter of 2008. The joint-venture agreement with Schering-Plough on cardiovascular drugs Vytorin and Zetia continued to see falling sales due to safety and efficacy concerns surrounding the drugs.

Outlook and Implications

Merck & Co has presented a conservative guidance for 2009 reflecting the challenges faced by the firm in the year ahead. Overall, the firm has projected sales of US$23.4-US$24.2 billion similar to the trend witnessed in the past two years. The firms' restructuring costs are expected to continue to affect operating expenditure, with site closures and employee redundancy package costs to be incurred. This is expected to be in the US$400-600 million range. Among products, Singulair, Cozaar, Januvia/Janumet, and Gardasil are all expected to continue positive contributions to product earnings. For fiscal year 2010, Merck has re-affirmed non-GAAP revenues, including 50% of revenues from joint ventures and a compound annual growth rate of 2-4%.