Merck and Schering-Plough Release Upbeat Q1 Results

Merck & Schering-Plough Post Strong Q1 Results

In their traditional fashion, Merck and Schering-Plough simultaneously released first-quarter results—a practice that reflects the companies’ dependence on the results of their JV for Zetia and Vytorin. Strong sales of the JV—up 48% y/y—are reported as equity income, and have boosted the bottom line of the two drug-makers.

Merck’s performance in the latest quarter has shown a marked improvement in comparison to the same quarter of last year. Back then, Merck’s operating income was 14% lower y/y, based on Global Insight calculations. Now it has remained stagnant, but at least has not declined further y/y. Meanwhile, the company’s sales grew by 7% y/y—not bad for a company that has now faced up to the reality of generic competition for its blockbuster statin Zocor in the United States. Net income has grown by 12%, boosted by the Vytorin/Zetia JV income and slower growth in marketing and administrative costs.

Schering-Plough meanwhile continues to go from strength to strength with a 16.6% increase in sales (18% growth for human prescription drugs) and a healthy 29.7% y/y rise in operating income, despite the steep 47% jump in research and development (R&D) costs.

Vytorin/Zetia JV Boosts Performance

The two companies’ JV produced a 17% increase y/y in net total sales, which reached US$2.957 billion. Sales reported by Schering-Plough were up by 48% to US$1.2 billion, producing equity income of US$575 million for the company (up from US$389 million in the first quarter of the previous year). For Merck, the growth was just as impressive—a 47.2% increase in reported sales and equity income of US$652.6 million (up from US$503.4 million in the first quarter of 2006). Furthermore, the companies’ separate reporting of Vytorin and Zetia sales indicates that Zetia continued to perform strongly and its sales have not been cannibalised by Vytorin as feared.

Aside from the JV, Merck’s sales have been particularly strong for allergy drug Singulair, angiotensin II receptor antagonist Cozaar/Hyzaar, human papillomavirus vaccine Gardasil, and diabetes drug Januvia. Allergy drugs have also boosted Schering-Plough’s sales in the first quarter, with a strong showing from both Nasonex and Clarinex, while sales of anti-inflammatory Remicade also grew by 34% y/y

Outlook and Implications

The strength of Vytorin and Zetia sales indicates that the companies’ promotional efforts have resulted in a strong differentiation between the two products and traditional statins. In addition, the clear continued differentiation between Zetia and Vytorin has prevented cannibalisation of the Zetia sales by Vytorin. The strong performance of Merck’s HPV vaccine Gardasil has also been partially boosted by strong lobbying in the United States—now largely abandoned amid growing criticism in the States. The drug will continue to gain momentum, however, driven by the lack of competition as the approval of a rival GlaxoSmithKline (GSK) vaccine has stalled. Delays in approval of a Novartis (Switzerland) rival will also continue to provide amble opportunities for sales growth of Merck’s first-in-class diabetes drug Januvia (sitagliptin).

Following last week’s increase in its EPS guidance—timed to coincide with the adverse Arcoxia approval outcome—Merck has now confirmed the guidance and has provided guidance on several other items.

Schering-Plough did not provide major new pipeline or guidance updates in the current report. However, the company’s recent move to acquire Akzo Nobel’s (Netherlands) drug business, Organon Biosciences will boost Schering-Plough’s late-stage pipeline, while also boosting its portfolio in the areas of women’s health and hormone treatments.