Global Insight Perspective | |
Significance | Merck KGaA has reported an 8.5% year-on-year (y/y) rise to 6.3 billion euro for 2006, of which 4.1 billion euro was sourced directly through pharmaceuticals. |
Implications | All three units of Merck's Pharmaceutical division continued to grow over 2006, with Generics posting strong fourth-quarter (Q4) results despite unfavourable regulatory conditions at home in Germany. The unit's stable performance should increase its chances of finding a buyer this year, and there is no shortage of candidates. |
Outlook | While current blockbusters are selling strongly, the race is on for approvals of new drug candidates and indication extensions for existing drugs. Late-stage clinical testing is the name of the game, and Merck Serono's new 1-billion-euro research and development (R&D) budget will certainly be put to the test over the coming year. |
Merck Takes a Bow
German pharma and chemicals company Merck KGaA has released preliminary financial results for the full year and fourth quarter of 2006, reporting an 8.5% year-on-year (y/y) rise in group sales to 6.3 billion euro (US$8.1 billion). The larger part of this was made up of pharmaceutical sales, which grew by 8.6% y/y to reach 4.1 billion euro, although sales of chemical products grew at an overall faster rate. Within the Pharmaceutical unit, the Ethicals division saw the biggest leap in full-year revenue growth, prompted largely by an impressive 55% y/y leap in turnover of oncology drug Erbitux (cetuximab) to 337 million euro.
The Generics division, which some observers predicted could be hit by new legislation in Germany, still managed to record 6.9% y/y sales growth for 2006 as a whole, and an even stronger 9.2% rise to 479 million euro during the fourth quarter. Earlier this month, Merck acknowledged that it was considering a possible divestment of its generics unit in order to focus on higher-value products under the new Merck Serono merger (see Germany: 8 January 2006: Generic Divestment Confirmed as "Strategic Option" as Merck Serono Comes Online), and several pharma and generics players have already been touted as potential buyers by the media. These include Teva (Israel), Dr Reddy's, Ranbaxy (both India) and the latest name to emerge, Swiss pharma heavyweight Novartis.
All units combined to create a group operating profit—expressed as earnings before interest and taxation (EBIT)—of 1.3 billion euro (US$1.7 billion). Profit after tax was also just over the 1-billion-euro mark, which Merck described as a company record.
Exceptional items played an important role in contributing towards Merck's cash situation in 2006, the most noteworthy item being a gain of some 378 million euro from the sale of shares in German pharma company Schering AG to larger rival Bayer AG, which went on to merge with Schering (see Germany: 15 June 2006: Eleventh-Hour Deal Sees Merck Offer Shares to Bayer at Highest Price Yet).
Merck KGaA: 2006 Financial Results (mil. euro) | ||||
Q4 2006 | % Change, Y/Y | Full-Year 2006 | % Change, Y/Y | |
Group Revenues | 1,625.3 | 9.0 | 6,258.6 | 8.5 |
Operating Income | 192.2 | 35.9 | 1,324.8 | 38.6 |
Pharmaceutical Sales | 1,071 | 8.6 | 4,119 | 8.6 |
- Ethicals | 489 | 8.8 | 1,902 | 11.0 |
- Generics | 479 | 9.2 | 1,819 | 6.9 |
- Consumer Health Care | 102 | 5.0 | 398 | 6.3 |
Chemical Sales | N/A | N/A | 2,106 | 11.0 |
Source: Merck KGaA | ||||
Outlook and Implications
With Merck's takeover of Serono now complete, and only integration work still remaining, the combined company is turning its attention towards pipeline developments that can be expected over the next 12 months. The biggest challenge for Merck Serono will be to obtain an indication extension for Erbitux. Already approved as a colorectal cancer drug in 58 countries under Merck's marketing territory, Erbitux has undergone several Phase III trials over the past year to determine its efficacy as a treatment for the metastatic form of the disease. While certain tests have shown encouraging results (see Germany: 10 January 2007: CRYSTAL Clear Success in New Phase III Trial on Merck KGaA's Erbitux in Colorectal Cancer Setting), others have cast a shadow over the drug's prospects in this indication (see Germany: 6 November 2006: Conflicting Phase III Results for Merck KGaA as Erbitux Fails to Improve Colorectal-Cancer Survival Rates).
From the Serono stable, phenylketonuria drug candidate Phenoptin (sapropterin dihydrochloride) has demonstrated impressive clinical results among paediatric patients (see Germany: 17 January 2007: Merck Serono, BioMarin Report Positive Phase III Performance of Phenoptin in Phenylketonuria), and Merck Serono is now expecting to submit marketing applications in the United States and European Union during the third quarter of this year. Oral multiple-sclerosis drug cladribine, which has U.S. fast-track approval status, is to undergo a pivotal Phase III trial for relapsing forms of the disease, and enrolment for the trial has just been completed.
As such, research costs can be expected to soar during 2007, but this should be aided in part by a much wider research and development (R&D) budget now that Merck and Serono have combined. Indeed, when the takeover was first announced, Merck KGaA revealed that the new Merck Serono Biopharmaceuticals will have an annual R&D budget of 1 billion euro (see Germany: 21 September 2006: Second Time Lucky? Expansion at Last as Merck KGaA Snaps Up Serono for US$13.3 bil.). Serono's overall contribution to the new company's marketed drugs is much wider than Merck's, which will help to diversify revenue at Merck's Ethicals division—with which Serono has been merged—away from over-reliance on Erbitux.