Merck Revenues Rise Smartly, but It's Still Planning More Layoffs

Just like rival Pfizer (PFE), which saw revenue and earnings jump last quarter upon the completion of the Wyeth acquisition, so did Merck & Co.'s (MRK) results benefit from its $41.1 billion purchase of Schering-Plough. The drugmaker, known for its Singulair asthma medicine and cervical cancer vaccine Gardasil, posted huge jumps in revenue and profit for the fourth quarter. Still, Merck announced restructuring steps, including massive layoffs.The now-second-largest pharmaceutical reported quarterly net income of $6.49 billion, nearly quadruple last year's income of $1.64 billion. But the results include several large one-time items. Excluding these, earnings per share were 79 cents (rather than the all-inclusive $2.35 per share). The adjusted earnings are lower than last year's earnings, but in line with Wall Street's estimates.

Sales jumped 67% to $10.09 billion from $6.03 billion, fueled mostly by the addition of Schering-Plough products but also by higher sales for some key Merck products. The sales figure topped the $9.7 billion analysts had expected.

Rising and Falling Products

Merck saw robust performance in some important drugs. Sales of the widely popular asthma treatment Singulair grew 12% during the quarter to $1.3 billion. Diabetes drug Januvia recorded worldwide combined sales of $760 million during the fourth quarter, a 43% increase. Rheumatoid arthritis drug Remicade also registered growth, while HIV treatment Isentress saw sales increase by 80% in the quarter getting a July approval as a first-line therapy.

However, U.S. sales of cholesterol drugs Zetia and and Vytorin continued to suffer following a study showing they don't work better than older -- and cheaper -- medications. Sales of its cervical cancer vaccine, Gardasil, also kept declining as Merck found it challenging to penetrate the market for older women and as the competition with GlaxoSmithKline's (GSK) Cervarix increased. Worldwide sales of Gardasil for the year dropped 20% to $1.1 billion.

And while Merck's anti-hypertensive medicines Cozaar and Hyzaar recorded an 8% increase in sales to $955 million during the quarter, they stand to lose patent protection in major markets during the first half of 2010.

A Total of 17,500 Jobs Lost?

Merck also announced the first phase of its restructuring program, which has a target of $3.5 billion in savings by 2012. The first phase includes a 15% companywide workforce reduction by the end of 2012. Merck had some 100,000 workers at the end of last year. Another 2,500 jobs now vacant will also be eliminated, which could mean a total of 17,500 jobs cut.

"The new Merck is off to an excellent start," CEO Richard Clark said in a statement. "Each of our top-10 selling brands from an expanded product portfolio exceeded $1 billion in annual sales. At the same time, we have a number of product launches underway in major global markets with more to come this year."

Indeed, unlike Pfizer, which lowered its 2012 financial forecasts, Merck continues to target a high-single-digit compound annual growth rate in earnings per share (excluding special items), from 2009 to 2013. Merck said it expects to provide its 2010 outlook in April.

So far, it seems that the Schering-Plough deal Merck made to address its lacking pipeline and upcoming patent expirations is helping the company do just that. As expected, the acquisition also helped Merck diversify its product portfolio and start achieving cost savings. If the upcoming new drugs live up to expectations, Merck can indeed expect more growth to come.
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