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Merck Beats Profit Forecasts, Helped by Cost Cuts

Published: Thursday, 22 Oct 2009 | 9:28 AM ET

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By: Reuters

Merck, slated to acquire Schering-Plough later this year, reported better-than-expected earnings due to cost controls and strong sales of its diabetes and HIV treatments.

Merck on Thursday reported net income of $3.42 billion, or $1.61 per share, in the third quarter. That compared with $1.09 billion, or 51 cents per share, in the year-earlier period.

Excluding special items, including a $1.7 billion after-tax gain from the sale of its Merial animal health business and restructuring charges, Merck earned 90 cents per share.

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Analysts on average expected 82 cents per share, according to Thomson Reuters.

Merck said the profit beat was largely due to controls on its marketing and administrative expenses, as well as costs of its materials and products.

Global company sales rose 2 percent to $6.05 billion, a bit higher than Wall Street's expectations of $6 billion.

Revenue would have risen 5 percent if not for the stronger dollar, which lowers the value of overseas sales.

To pave the way for its planned $41 billion purchase of Schering-Plough [SGP Loading... () ], Merck in July agreed to sell its half stake in the Merial pet care business for $4 billion to long-standing partner Sanofi-Aventis [SNY Loading... () ].

Merck is expected to reap huge cost savings from the Schering-Plough merger by cutting 15 percent of their combined workforce.

It will acquire a number of valuable Schering-Plough drugs, including arthritis treatment Remicade, overseas rights to a promising newer arthritis treatment called Simponi (golimumab) and a potential blockbuster blood-clot preventer now in late-stage studies.

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Many analysts have hailed the purchase of Schering-Plough, saying it has a more promising roster of drugs in late-stage trials than far-larger Merck. Moreover, Remicade and other Schering drugs could shore up Merck at a time when a number of its own drugs are posting disappointing sales.

During the quarter, sales of Merck's Gardasil vaccine against cervical cancer fell 22 percent to $311 million, hurt by overseas competition from GlaxoSmithKline's [GSK Loading... () ] rival Cervarix vaccine.

Combined sales of cholesterol fighters Vytorin and Zetia, sold in partnership with Schering-Plough, fell 7 percent to $1 billion. The drugs have lost favor with many doctors following a pair of clinical trials that cast doubt on their effectiveness.

Quarterly sales of Merck's blood-pressure drugs Cozaar and Hyzaar slipped 3 percent to $861 million, hurt by competition from Novartis' [NVS Loading... () ] Diovan.

But Januvia, a new type of diabetes pill, continued to make inroads with doctors and patients, with sales growing 30 percent to $491 million. And HIV treatment Isentress, which also works by a new mechanism of action, jumped 84 percent to $197 million.

Sales of asthma drug Singulair, Merck's biggest product, rose 5 percent to $1.1 billion. Although that is a slowdown from 16 percent growth in the second quarter, it reflects a continuing rebound for Singulair, whose sales had declined in recent quarters due to concerns it might increase suicide risk.

Shares of Merck [MRK Loading... () ] fell in early trading.