Wednesday, February 2, 2011

Merck & Co. (NYSE: MRK): Q4 Earnings Preview 2010

Merck & Co. (NYSE: MRK), the world's second-biggest drugmaker by revenue, is scheduled to release its fourth-quarter earnings before the opening bell on Thursday, February 3, 2011. Analysts, on average, expect the company to report earnings of 83 cents per share on revenue of $11.52 billion. In the year ago quarter, the company reported earnings of 79 per share on revenue of $10.09 billion.

Merck & Co., Inc., a global health care company, discovers, develops, manufactures, and markets medicines, vaccines, biologic therapies, and consumer and animal products.

In the preceding third quarter, the Whitehouse Station, New Jersey-based company's net income was $341.6 million, or 11 cents per share, compared to $3.4 billion, or $1.61 per share, in the year-earlier quarter. On an adjusted basis, the company earned 85 cents a share in the latest quarter. Revenue surged 84% to $11.1 billion from $6.1 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 83 cents a share on revenue of $11.47 billion. 

At its last earnings call in October, the drugmaker said  that it continues to expect full-year 2010 revenue to be between $45.4 billion and $46.1 billion, including the impact of U.S. health care reform legislation. Merck raised the lower end of the non-GAAP EPS range and is now targeting a range of $3.31 to $3.39, excluding certain items, and a 2010 GAAP EPS range of $0.66 to $0.97.

Merck is currently faced by issues like patent expirations of key drugs and European pricing pressure. However, the company has a deep pipeline that should act as a cushion when its key products lose patent protection in the next few years. Meanwhile, a dispute with Johnson & Johnson (NYSE: JNJ) over the shared marketing of anti-inflammatory drug Remicade also continues to be an overhang on Merck’s stock.

Recently, the company announced that it is discontinuing a key clinical trial and modifying a second for its much-anticipated blood-thinner vorapaxar at the recommendation of the study’s monitoring board. The drug, Vorapaxar, had been considered a major market opportunity for Merck, whose top-line has suffered in recent years through the loss of market exclusivity for several key products due to patent expirations and the recall of its popular pain reliever Vioxx. Vorapaxar, meant to prevent heart attacks and strokes or their recurrence, was considered a crown jewel in Merck's $41 billion acquisition in late 2009 of Schering-Plough Corp and deemed capable of generating annual sales of more than $3 billion.

On the bright side, Merck now has several drugs in late-stage trials which could prove to be the compelling buy catalyst for the stock in the second half of 2011. Merck's new CEO Kenneth Frazier, who took over on January 1, has vowed not to throw drug exploration money around loosely but rather, focusing on innovative drugs.

Late in December, the pharmaceutical giant reported positive results from the SHARP (Study of Heart and Renal Protection) study on its cholesterol-lowering drug Vytorin.

In November, the company presented encouraging results on its phase III lipid management candidate anacetrapib. Results from a phase III study, DEFINE (Determining the EFficacy and Tolerability of CETP INhibition with AnacEtrapib), showed that treatment with the candidate resulted in a significant reduction in “bad cholesterol” and an increase in “good cholesterol”.

Early in December,  Merck & Co. said that it'll buy privately-held SmartCells, a firm developing glucose responsive insulin formulation to treat diabetes mellitus. In  January, Merck reached a deal with Parexel International Corp. for help developing copies of biologic drugs, which are grown in living cells rather than by combining chemicals.

Last month, the company said that it is looking to form partnerships as part of a plan to boost its drug sales in emerging markets, CEO Ken Frazier said Tuesday at the J.P. Morgan Healthcare Conference in San Francisco. He said partnerships would be cheaper than acquisitions and would give the company on-the-ground management expertise. Merck wants emerging market drug sales to account for 25% of its total revenue by 2013, up from 18% today. Merck said it ranks fifth in market share in emerging markets. In 2011, Merck plans to launch 10 new drugs in overseas markets.

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