Global Insight Perspective | |
Significance | Merck Serono's sales grew by 9.7% y/y during the first quarter of 2008, outstripped by even stronger growth in operating profit, which rose by 22.8%. |
Implications | Strong sales growth of cancer drug Erbitux, rapidly gaining market share in a new indication, played a key role in boosting Merck Serono's fortunes over January-March. With new data to be released at the upcoming ASCO conference, Erbitux will remain central to Merck Serono's strategy for short- to medium-term growth. |
Outlook | While Merck Serono looks set to remain strong financially this year, its dependence on Erbitux and Rebif is becoming increasingly obvious, particularly since follow-on cancer compound matuzumab was dropped in February. New indications for the two top-sellers should lie ahead, but Merck will also be on the lookout for strategic licensing opportunities to diversify its options. |
German biopharmaceutical company Merck Serono performed solidly during the first three months of 2008, with sales rising by just under 10% year-on-year (y/y) to 1.1 billion euro (US$1.8 billion) and total revenues up by 9.7% y/y at 1.2 billion euro. Operational costs were largely kept in check, with only the slightest of rises seen in SG&A (sales, general and administrative) spending. Despite a charge of 139 million euro paid during the first quarter, related to the amortisation of intangible assets connected to the 2006 acquisition of Serono, operating profit grew strongly over the period. Calculated by Global Insight as sales minus SG&A and R&D spending, Merck Serono's first-quarter operating income soared by 22.8% y/y to stand at 428.5 million euro. Investment in R&D, at 249.2 million euro and up by 7.3% y/y, remained on target for the company to achieve its goal of spending 1 billion euro per year on the R&D of new medicines.
Merck Serono accounted for some 91% of revenues within the wider Merck Pharmaceuticals business at the close of the first quarter, with the remaining 9% brought by the Consumer Health Care unit. Here, first-quarter sales were up by 9.8% y/y and stood at 110.3 million euro, while revenues grew by 9.9% y/y to reach 110.8 million euro. Overall, Merck Pharmaceuticals saw sales of 1.22 billion euro, up 9.7% y/y.
Merck Serono: Financial Results, Q1 2008 (mil. euro) | ||
Q1 2008 | % Change Y/Y | |
Net Sales | 1,114.2 | 9.7 |
Royalties | 67.5 | 8.9 |
Total Revenues | 1,181.7 | 9.7 |
Sales, General and Administrative Costs | -436.5 | 0.5 |
Research and Development Costs | -249.2 | 7.3 |
Operating Profit* | 428.5 | 22.8 |
R&D as % of Sales | 22.4% | 0.5 pp lower |
Operating Margin | 38.5% | 4.1 pp higher |
* Operating profit calculated by Global Insight as sales minus SG&A and R&D costs. | ||
Multiple-sclerosis drug Rebif (interferon beta-1a) and cancer treatment Erbitux (cetuximab) remained Merck Serono's top-sellers during the first quarter, bringing in turnover of 313 million euro and 145 million euro, respectively. However, it was Erbitux that really shined during the first three months of the year, thanks to a stellar 33% y/y rise in sales. While Erbitux's position as a colorectal cancer drug is now well cemented in markets across the world, it is still in the process of establishing itself as a treatment for head and neck cancer. Following an announcement by the U.K.'s National Institute for Health and Clinical Excellence (NICE) in February that it was revising earlier guidance on Erbitux in favour of recommending reimbursement for a limited segment of head-and-neck cancer patients, Merck Serono is now expecting greater revenues from the drug in this key European market (see United Kingdom: 13 February 2008: NICE to Review Guidance on Merck Serono's Erbitux in Head and Neck Cancer).
Sales growth was seen nearly all Merck Serono's leading drugs, with particularly high gains for Rebif (up 11% y/y), diabetes drug Glucophage (metformin; up 10% y/y), and psoriasis treatment Raptiva (efalizumab; up 23% y/y). The group's hormone-based drugs fared less well, however, with infertility treatment Gonal-F (follitropin alfa) seeing growth of just 1.3% y/y to 114 million euro and growth hormones such as Saizen (somatropin) and Serostim (somatropin [rDNA origin] for injection) suffering a 2.3% y/y contraction in sales, which stood at 52 million euro at the end of March.
Merck Serono: Selected Product Sales, Q1 2008 (mil. euro) | ||
Brand | Q1 2008 | % Change Y/Y |
Rebif | 313 | 11.0 |
Erbitux | 145 | 33.0 |
Gonal-F | 114 | 1.3 |
Bisoprolol products, incl. Concor | 100 | 6.2 |
Glucophage | 72 | 10.0 |
Thyroid medicines, incl. Eurythrox | 35 | 4.6 |
Raptiva | 22 | 23.0 |
Growth hormones, incl. Saizen and Serostim | 52 | -2.3 |
Source: Merck KGaA | ||
Outlook and Implications
Merck Serono has not provided any full-year financial guidance with the publication of its first-quarter results, but it has hinted strongly that Erbitux will play a key role in its future plans. The group is due to present data from late-stage clinical trials on Erbitux in a range of different cancer types at the upcoming meeting of the American Society for Clinical Oncology (ASCO), and rumours are already circulating that these data could give Erbitux an extra advantage against rival drug Avastin (bevacizuman; produced by U.S. firm Genentech) in non-small-cell lung cancer (NSCLC) patients (see United States: 22 April 2008: ImClone's Erbitux Could Pose New Threat to Avastin in Lung-Cancer Setting). The company is working hard to make up for the unexpected loss of potential Erbitux follow-on drug matuzumab, following the decision to stop development of the compound earlier this year (see Germany: 18 February 2008: Takeda, Merck KGaA Halt Matuzumab Development). Until drugs such as Raptiva gain sufficient market share, Merck Serono will remain reliant on Erbitux and Rebif to boost sales, and the company is anticipating approvals for both drugs in new indications this year. In spite of this, the group will doubtless also be on the lookout for strategic licensing opportunities to diversify its options.