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Author
Linda A. Johnson
Date
February 5, 2014

Merck Q4 net drops 14 pct. on generic competition

Merck & Co.’s fourth-quarter profit dropped 14 percent, with its aggressive cost cutting not enough to offset restructuring charges, generic competition to former blockbuster medicines and unfavorable currency exchange rates.

Results just missed Wall Street expectations, and even though Merck said 2014 will be a “trough year” for revenue, shares briefly hit a six-year high of $55.20. That’s because the world’s third-biggest drugmaker separately announced new, potentially lucrative alliances.

Merck will collaborate with three other drugmakers to test its hot experimental cancer drug, called MK-3475, in combination with theirs. It’s in a new class of cancer medicines meant to restore the immune system’s natural ability to spot and target cancer cells.

The company also reported net income of $781 million, or 26 cents per share, down from $908 million, or 30 cents per share, a year earlier.

The maker of the Type 2 diabetes pill Januvia said that excluding one-time items, net income was $2.6 billion, or 88 cents per share — a penny shy of analysts’ expectations.

Revenue totaled $11.32 billion, down 4 percent. Analysts expected $11.36 billion.

Sales were lower than expected for Januvia, HPV vaccine Gardasil and a few other products, but higher than expected for immune disorder drug Remicade, HIV drug Isentress and cholesterol pills Zetia and Vytorin.

Two issues dominated Merck’s conference call with analysts. Asked about MK-3475′s potential, as a solo treatment and combined with drugs from new partners Pfizer Inc., Amgen Inc. and Incyte Corp., Merck said it’s too soon to tell.

Analysts also asked about Merck’s strategic review of its animal health business, the world’s second largest, and its consumer health business, which sells Coppertone sun care items and nonprescription Claritin allergy pills. CEO Kenneth Frazier said he’s determining whether they’d be more valuable inside or outside of Merck and will decide by year’s end.

Bernstein Research analyst Dr. Timothy Anderson wrote that he thinks Merck might keep animal health, which Frazier said he likes for a number of reasons, rather than consumer health, which is limited by small size. Swiss drugmaker Novartis AG reportedly is weighing deals including swapping its animal health and vaccines business for Merck’s consumer segment.

Merck, based in Whitehouse Station, N.J., forecast 2014 profit of $3.35 to $3.53 per share, excluding one-time items. Analysts are projecting $3.46 per share.

For all of 2013, Merck reported net income of $4.04 billion, or $1.47 per share, on revenue of $44.03 billion.

Shares of the drugmaker closed up 3 cents at $53.54.

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