Merck Q2 Adj. Profit Tops View, But Sales Miss; Boosts 2015 Adj. EPS Outlook

(RTTNews) - Healthcare giant Merck & Co., Inc. (MRK) reported Tuesday a profit for the second quarter that plunged 66 percent from last year, hurt by significantly higher charges and R&D costs as well as a double-digit revenue decline.

However, stripping down charges, adjusted earnings per share topped analysts' expectations, while quarterly revenues missed their estimates by a whisker. The company also raised its adjusted earnings and revenue outlook for the full-year 2015.

"We're investing resources to grow our strongest brands and to support the most promising assets in our pipeline, while at the same time lowering our cost base and delivering operating leverage. We've made significant progress this quarter in two of our most important assets, the KEYTRUDA and hepatitis C programs, and will be fully prepared to take advantage of these potentially breakthrough opportunities," Chairman and CEO Kenneth Frazier said.

The world's second-biggest drugmaker reported net income attributable to the company of $687 million or $0.24 per share for the second quarter, sharply lower than $2.00 billion or $0.68 per share in the prior-year quarter.

Results for the latest quarter primarily include net acquisition, divestiture and restructuring costs of $0.62 per share, while the year-ago quarter included $0.17 per share of the same costs.

Excluding items, adjusted net income for the quarter was $2.44 billion or $0.86 per share, compared to $2.49 billion or $0.85 per share in the year-ago quarter.

On average, 16 analysts polled by Thomson Reuters expected the company to report earnings of $0.81 per share for the quarter. Analysts' estimates typically exclude special items.

Total worldwide sales for the quarter decreased 11 percent to $9.79 billion from $10.93 billion in the same quarter last year, and missed fourteen Wall Street analysts' consensus estimate of $9.80 billion by a whisker.

The company said the decline in sales reflects a 7 percent negative impact from foreign exchange and a 7 percent net unfavorable impact resulting from the divestiture of the consumer care business and select products, partially offset by the acquisition of Cubist Pharmaceuticals, Inc.

Merck pharmaceutical sales were $8.56 billion, a decline of 6 percent from last year, including a 9 percent negative impact from foreign exchange. Excluding the impact of exchange, growth was driven by the three core therapeutic areas - diabetes, hospital acute care and oncology, partially offset by declines in cardiovascular and hepatitis C.

Pharmaceutical sales were primarily hurt by a 25 percent drop in global sales of anti-inflamatory drug Remicade, a 16 percent decline in sales of cholesterol drug Zetia/Vytorin and a 17 percent drop in sales of HIV drug Isentress.

Meanwhile, sales of HPV vaccine Gardasil increased 4 percent, and sales of vaccines ProQuad, M-M-R II and Varivax grew 10 percent from last year. Sales of diabetes drug Janumet/Januvia also edged up 1 percent from a year ago.

Global animal health sales also declined 4 percent to $840 million, including a 14 percent negative impact from foreign exchange. Consumer care sales were nil, while other revenues declined 3 percent to $381 million.

Gross margin for the quarter improved 640 basis points to 61.6 percent from last year's 55.2 percent, driven by lower inventory write-offs and foreign exchange. It also reflected 13.8 and 17.4 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs.

Research and development costs decreased 2 percent to $1.6 billion from last year.

The European Commission approved Keytruda for the treatment of advanced melanoma last week, while the U.S. Food and Drug Administration accepted the supplemental Biologics License Application or sBLA, for Keytruda in advanced non-small cell lung cancer. The FDA granted priority review with a PDUFA action date of October 2, 2015.

The company announced earlier in the day that the New Drug Application (NDA) for chronic hepatitis C combination regimen Grazoprevir/Elbasvir was accepted for regulatory review in both the U.S. and European Union. The FDA granted priority review with a PDUFA action date of January 28, 2016, while the European Medicines Agency said it will initiate a review of the marketing authorization application (MAA) under accelerated assessment timelines.

Separately, Merck announced a definitive agreement to acquire privately held cCAM Biotherapeutics domiciled in Israel through its subsidiary. The deal is in exchange for an upfront payment of $95 million in cash. Further, cCAM shareholders are eligible to receive a total of up to $510 million associated with the attainment of certain clinical development, regulatory and commercial milestones.

Looking ahead to fiscal 2015, Merck raised and narrowed its adjusted earnings guidance to a range of $3.45 to $3.55 per share from the prior outlook range of $3.35 and $3.48 per share, both include a negative impact from foreign exchange.

Revenues are now projected between $38.6 billion and $39.8 billion, up from the prior projection between $38.3 billion and $39.8 billion, both including a negative impact from foreign exchange and about $1 billion of net lost sales from acquisitions and divestitures.

The Street is currently looking for full-year 2015 earnings of $3.45 per share on annual revenues of $39.73 billion.

In Tuesday's regular trading session, MRK is currently trading at $57.03, down $0.04 or 0.06% on a volume of 3.66 million shares. In the past 52-weeks, the stock has traded between $52.49 and $63.62.