Thursday, April 28, 2011

Merck & Co. (NYSE: MRK): Q1 Earnings Preview 2011

Merck & Co. (NYSE: MRK), the world's second-biggest drugmaker by revenue, is scheduled to release its first-quarter earnings before the opening bell on Friday, April 29, 2011. Analysts, on average, expect the company to report earnings of 84 cents per share on revenue of $11.37 billion. In the year ago quarter, the company reported earnings of 83 per share on revenue of $11.42 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 fourth quarter, the Whitehouse Station, New Jersey-based company's netloss was $531 million, or 17 cents per share, compared to a profit of $6.49 billion, or $2.35 per share, in the year-earlier quarter. On an adjusted basis, the company earned 88 cents a share in the fourth quarter. Revenue surged to $12.09 billion from $10.09 billion. Analysts, on average, expected the company to report earnings of 83 cents per share on revenue of $11.52 billion. 

Recently, the company reaafirmed that it expects 2011 non-GAAP earnings per share to be in the range of $3.64 to $3.76, excluding certain items. The company noted that the 2011 non-GAAP EPS target range excludes the $500 million one-time payment to Centocor as well as related tax impacts of the arbitration resolution, purchase accounting adjustments, restructuring costs and merger-related expenses. The 2011 GAAP EPS target range includes the entire impact of the arbitration settlement and is now expected to be in the range of $1.89 to $2.17. Merck also continues to expect full year 2011 revenue to grow in the low to mid-single digit percent range from the base of $46.0 billion in the full year of 2010.

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.

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.

Early in April, U.S. Food and Drug Administration (FDA) approved Merck's skin cancer drug, Sylatron for injection, for subcutaneous use. Merck says it's the first additional, or adjuvant, therapy for melanoma approved in this country in 15 years. 

Recently, Merck's investigational drug VICTRELIS was unanimously recommended for approval by an FDA Advisory Committee for treatment of chronic HCV genotype 1 infection in combination with current standard therapy.  FDA usually follows its panels' recommendation. The FDA action on VICTRELIS is expected by mid-May.

Merck is seeking to expand through acquisitions and partnerships. Early this month, Merck announced the formation of a joint venture with Indian pharmaceutical firm Sun Pharmaceutical Industries Ltd. to develop, manufacture and commercialize new combinations and formulations of branded generics in the emerging markets. Also in April, the company agreed to acquire specialty pharmaceutical company Inspire Pharmaceuticals, Inc. in a cash transaction valued at about $430 million. The deal will strengthen Merck's ophthalmology business and position it for future growth with an expanded portfolio. Merck said it continues to build upon its long-term commitment to improving therapeutic options for the treatment of eye diseases.

Merck removed one big cloud with an April 15 agreement with Johnson & Johnson to end two years of arbitration over billions in annual revenue from two biotech drugs for immune disorders, Remicade and Simponi. Under the settlement, Merck will give J&J a one-time $500 million payment and more of the revenue, but it averted the possibility arbitrators would give it all to J&J. Merck kept rights to sell the drugs in Europe, Russia and Turkey, splitting those profits 50-50 with J&J.

Among other developments, the company's board of directors recently approved the additional repurchase of up to $5 billion of the company's common stock, bringing its total current share repurchase program to $6.4 billion. The company still has a $1.4 billion share repurchase authorization remaining under the program announced on November 24, 2009.

Full Disclosure: None.
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