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Old 21st April 2009, 07:15 AM
Pharma Newshound Pharma Newshound is offline
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Default Merck Worldwide Sales Decrease 8%

Source: Press Release on PharmaLive.com

Merck Announces First-Quarter 2009 Financial Results

* Company Announces First-Quarter 2009 Non-GAAP EPS of $0.74, Excluding Certain Items; First-Quarter GAAP EPS of $0.67
* Merger with Schering-Plough Progressing as Planned
* Merck Delays U.S. Telcagepant (MK-0974) Filing; Company Augments Pipeline by Signing Agreements with Insmed, Cardiome, Santen, Medarex and Massachusetts Biologic Laboratories
* Merck Reaffirms Full-Year 2009 Non-GAAP EPS Range of $3.15 to $3.30, Excluding Certain Items; Reduces 2009 GAAP EPS Range to $2.84 to $3.09 Due to Merger-Related Expenses

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Apr 21, 2009 - Merck & Co., Inc. today announced financial results for the first quarter of 2009. The company reported non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the quarter of $0.74, which excludes $0.07 of restructuring charges and merger-related expenses. First-quarter GAAP EPS was $0.67.

Worldwide sales for the first quarter of 2009 were $5.4 billion, a decrease of 8 percent compared to the first quarter of 2008. Foreign exchange negatively affected global sales performance by 3 percent for the quarter. The loss of U.S. marketing exclusivity of FOSAMAX further negatively affected sales performance by 3 percent in the quarter. Net income for the first quarter was $1,425.0 million, compared with $3,302.6 million in the first quarter of 2008. First-quarter 2008 net income includes a $1.4 billion after-tax gain on a distribution from AstraZeneca LP.

A reconciliation of EPS as reported in accordance with GAAP to EPS, excluding certain items, is provided in the table that follows.

"Our first-quarter results in part reflect the impact of the difficult global economy on patients, providers and payors, but we remain on track to meet our full-year earnings guidance," said Richard T. Clark, chairman, president and chief executive officer.

"We believe our planned merger with Schering-Plough will accelerate Merck's transformation into a global healthcare leader built for sustainable growth and success," added Clark. "Together we will have a formidable pipeline, an expanded product portfolio, a broader global presence, and the best talent in the industry. The new Merck will have increased financial strength and enhanced capabilities focused on breakthrough research and development."

1 Merck is providing information on 2009 and 2008 non-GAAP earnings per share that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, earnings per share prepared in accordance with GAAP.

Financial Highlights

Materials and production costs were $1.3 billion for the quarter, an increase of 8 percent from the first quarter of 2008. The first quarters of 2009 and 2008 include $22 million and $15 million, respectively, for costs associated with global restructuring programs. The gross margin was 75.2 percent for the first quarter of 2009 versus 78.7 percent for the same period in 2008, reflecting 0.4 and 0.3 percentage point unfavorable impacts, respectively, from restructuring costs noted above. The decline in the first quarter gross margin is primarily attributable to product mix and lower production volumes, which resulted in certain costs that were higher in the first quarter than those expected in the remaining quarters.

Marketing and administrative expenses were $1.6 billion for the first quarter of 2009, a decrease of 12 percent from the first quarter of 2008. Costs for the first quarter of 2009 include $7 million of merger-related expenses. Included in marketing and administrative expenses in the first quarter of 2008 were $40 million in charges solely for future legal defense costs for litigation related to FOSAMAX (alendronate sodium).

Research and development expenses were $1.2 billion for the quarter, an increase of 14 percent from the first quarter of 2008. These 2009 expenses include $88 million for costs associated with the company's 2008 global restructuring program.

Restructuring costs, primarily related to employee separations, were $64 million for the first quarter of 2009 and $70 million for the first quarter of 2008. As of March 31, 2009, Merck had approximately 54,100 employees.

Total overall costs associated with the company's global restructuring programs included in materials and production, research and development, and restructuring costs were $175 million and $85 million for the first quarter of 2009 and 2008, respectively, primarily comprised of employee separations and accelerated depreciation.

Equity income from affiliates was $586 million in the first quarter of 2009, a decrease of 10 percent from the first quarter of 2008 as a result of lower contributions from the Merck/Schering-Plough joint venture partially offset by higher contributions from AstraZeneca LP.

Other (income) expense, net, for the first quarter was $67 million of income compared with $2.2 billion of income in the first quarter of 2008. Included in the first quarter of 2009 was $12 million in commitment fees related to the financing of the Schering-Plough transaction. For the first quarter of 2008, the amount included a gain of $2.2 billion from a distribution received from AstraZeneca LP in which Merck maintains an interest and a $249 million gain on Merck's divestiture of its remaining worldwide rights to AGGRASTAT (tirofiban hydrochloride) to Iroko Pharmaceuticals. Also in the first quarter of 2008, Merck said it recorded a $300 million expense for a contribution to The Merck Company Foundation. Other (income) expense for the first quarter of 2008 also included a $55 million charge in connection with the resolution of a previously disclosed investigation by attorneys general from 29 states and the District of Columbia.

The first quarter effective tax rate was 18.4 percent. The effective tax rate excluding the impact of restructuring charges and merger-related costs was 19.4 percent, reflecting a benefit of approximately 4 percentage points resulting from a previously-disclosed settlement reached with the Canada Revenue Agency.

2009 Guidance

The company reiterated its expectations for 2009 non-GAAP EPS to be between $3.15 to $3.30, excluding certain items, and reduced its 2009 GAAP EPS range to $2.84 to $3.09, solely as a result of costs related to the proposed merger with Schering-Plough. The 2009 GAAP guidance includes a pretax charge of approximately $400 million to $600 million associated with the company's 2008 global restructuring program and $250 million to $350 million of costs related to the Schering-Plough merger.

Merck said it is reducing its guidance for full-year 2009 revenue (as reported by Merck & Co., Inc.) to $23.2 billion to $23.7 billion.

All of the 2009 guidance provided by the company excludes contributions from Schering-Plough that would result from the merger and any costs incurred upon closing of the merger, which is expected to occur in the fourth quarter.

A reconciliation of 2009 EPS as reported in accordance with GAAP to non-GAAP EPS, which adjusts for certain items, is provided in the table that follows.


Click here to view the associated table

Click here to view the associated table
In 2009, the company expects sales and GAAP and non-GAAP EPS in the second half of the year to be stronger than in the first half of the full year. In addition, the company said it expects marketing and administrative spend and research and development expenses to be more equally distributed across the remaining quarters than in previous years.

Details on Merck's full-year 2009 financial guidance can be found on page 11 of this news release.

Product Performance Highlights

Worldwide sales of SINGULAIR (montelukast sodium), a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, were $1.1 billion for the first quarter of 2009, representing a 4 percent decline compared with the first quarter of 2008.

Combined global sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), as reported by the Merck/Schering-Plough partnership, were $945 million for the first quarter of 2009, representing a 23 percent decline compared with the first quarter of 2008. Global sales of ZETIA, marketed as EZETROL outside the United States, were $479 million in the first quarter, a decrease of 18 percent compared with the first quarter of 2008. First-quarter 2009 global sales of VYTORIN, marketed outside the United States as INEGY, were $466 million, a decrease of 28 percent compared with the same period in 2008. The company records the results from its interest in the Merck/Schering-Plough partnership, which totaled $291 million in the first quarter, in equity income from affiliates.

Global sales of Merck's antihypertensive medicines, COZAAR (losartan potassium) and HYZAAR2 (losartan potassium and hydrochlorothiazide), were $839 million for the first quarter of 2009, representing a 1 percent decrease compared with the first quarter of 2008.

JANUVIA (sitagliptin), Merck's first-in-class DPP-4 inhibitor for the treatment of type 2 diabetes, recorded worldwide sales of $411 million during the first quarter of 2009, representing a 51 percent increase compared with same quarter in 2008. JANUMET (sitagliptin/metformin hydrochloride), a single tablet that targets all three key defects of type 2 diabetes, achieved worldwide sales of $128 million during the quarter, more than double the $58 million in sales reported for the first quarter 2008.

Worldwide sales of FOSAMAX and FOSAMAX PLUS D (alendronate sodium/cholecalciferol) which is marketed as FOSAVANCE throughout the European Union, were $261 million for the first quarter of 2009, representing a decrease of 44 percent compared with the first quarter of 2008. Since most formulations of these medicines have lost U.S. marketing exclusivity, the company is experiencing a significant decline in sales in the United States within the FOSAMAX franchise.

2 COZAAR and HYZAAR are registered trademarks of E.I. duPont de Nemours and Company, Wilmington, Del.

Merck's cervical cancer vaccine, GARDASIL (human papillomavirus (HPV) quadrivalent (types 6, 11, 16, 18) vaccine, recombinant), posted total sales as recorded by Merck of $262 million for the first quarter of 2009, a 33 percent decline from the same quarter in 2008. Vaccines in most major European markets are sold through the company's joint venture, Sanofi Pasteur MSD, and the results from the company's interest in the joint venture are recorded in equity income from affiliates.

Worldwide sales of ROTATEQ (rotavirus vaccine, live, oral, pentavalent), Merck's vaccine to help protect children against rotavirus gastroenteritis, as recorded by Merck, were $134 million in the first quarter of 2009 as compared with $190 million for the first quarter of 2008. In the first quarter of 2008, the company recognized $41 million in revenue as a result of a government purchase for the Centers for Disease Control and Prevention's Strategic National Stockpile.

ZOSTAVAX (zoster vaccine live), the company's vaccine to help prevent shingles (herpes zoster), recorded sales of $75 million for the first quarter of 2009 as compared with $74 million for the first quarter of 2008. During the first quarter, Merck cleared all remaining 2008 backorders for ZOSTAVAX and the company expects to return to normal shipping times in mid-2009.

ISENTRESS (raltegravir), Merck's first-in-class HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection in treatment-experienced adult patients, reported worldwide sales of $148 million for the first quarter of 2009, a three-fold increase compared with $47 million in the first quarter 2008.

Merck's Other Reported Products category includes a number of products that treat or prevent a broad range of medical conditions. Total sales for Other Reported Products, which include FOSAMAX and ISENTRESS, were $1.6 billion for the first quarter, representing a 16 percent decline compared with the first quarter of 2008.

Worldwide sales of Merck's other viral vaccines, which include VARIVAX (varicella virus vaccine live), M-M-R II (measles, mumps and rubella virus vaccine live) and PROQUAD (measles, mumps, rubella and varicella virus vaccine live), as recorded by Merck, were $252 million for the first quarter of 2009, an increase of 12 percent compared with the same period a year earlier.

Merck records ongoing revenue based on sales of products that are associated with alliances, the most significant of which is AstraZeneca LP. Revenue from AstraZeneca LP recorded by Merck was $356 million in the first quarter.

Pipeline Update

Merck said it is delaying the filing of the U.S. application for telcagepant (MK-0974), one of the company's investigational calcitonin gene-related peptide (CGRP) receptor antagonists for the treatment of acute migraine. The company said it no longer expects to file a new drug application with the FDA in 2009, and will provide an updated timeline once additional information is available.

This decision is based on recent findings from a Phase IIa exploratory study in which a small number of patients taking telcagepant twice daily for three months for the prevention of migraine were found to have marked elevations in liver transaminases. The daily dosing regimen in the prevention study was different than the dosing regimen used in Phase III studies in which telcagepant was intermittently administered in one or two doses to treat individual migraine attacks as they occurred. Other studies with telcagepant for the acute, intermittent treatment of migraine continue. Merck said it is reviewing data from the prevention study and is conducting additional analyses to further understand the overall safety profile of telcagepant.

MK-3207, Merck's other investigational CGRP-receptor antagonist for the treatment of migraine, remains in Phase IIb of clinical development. Merck said it will continue to review the data from ongoing and planned studies of MK-3207 to inform its clinical development program and work toward starting Phase III studies for MK-3207 later this year.

Merck said it is continuing its strategy of establishing strong external alliances to complement its substantial internal research capabilities, including research collaborations, licensing pre-clinical and clinical compounds and technology transfers to drive both near- and long-term growth. Since early February, Merck has signed agreements with Insmed Inc. to purchase its portfolio of follow-on biologics and manufacturing capabilities; with Cardiome Pharma Corp., for an investigational drug for the treatment of atrial fibrillation known as vernakalant; and with Santen Pharmaceutical Co., Ltd. for exclusive commercial rights to tafluprost, a prostaglandin analogue for the reduction of elevated intraocular pressure in open-angle glaucoma and ocular hypertension, in western Europe (excluding Germany), North America, South America and Africa. In addition, Merck signed a worldwide license agreement with Medarex and Massachusetts Biologic Laboratories for CDA-1 and CDB-1, an investigational combination antibody therapy that has completed Phase IIb clinical studies.

Merger Update

Merck said its previously announced merger with Schering-Plough is progressing as planned, with the close anticipated in the fourth quarter. The bank syndication is complete subject to final review and execution of documents. Merck said it has made the appropriate filings with regard to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Until the merger closes, both companies will continue to operate independently. The transaction is subject to approval by Merck and Schering-Plough shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as clearance by the European Commission under the EC Merger Regulation and certain other foreign jurisdictions.

Merck continues to expect the combined company will achieve a high single digit non-GAAP EPS combined annual growth rate from 2009 to 2013 when compared to Merck on a standalone basis in 2009.
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