Merck earnings highlight problems facing Big Pharma

Merck & Co. (MRK) reported first-quarter earnings Tuesday morning. The drugmaker posted a 57 percent drop in first-quarter income to $1.43 billion, or 67 cents per share. Excluding items, earnings were 74 cents a share, below consensus estimates of 77 cents a share. Similarly, revenue declined eight percent to $5.39 billion, also below estimates.

Merck blamed the decline on foreign exchange, which negatively affected global sales performance. It also lost U.S. marketing exclusivity of Fosamax. In addition, the comparison quarter of 2008 net income included a $1.4 billion gain on a distribution from AstraZeneca LP.

But Merck's troubling results didn't stop in first quarter performance. The pharmaceutical giant also cut its 2009 revenue by $400-600 million to $23.2 billion to $23.7 billion, although it reiterated its expectations for 2009 operating EPS to be between $3.15 to $3.30.

"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.

What Merck results really show is the problematic environment Big Pharma has been encountering with so many drugs coming off patent in coming years, declining sales of even the blockbuster drugs (Singulair sales decline 4 percent, Zetia and Vytorin sales dropped 28 percent, etc.), heightened competition with generics and oftentimes a left-to-be-desired pipeline.

As if to prove the point, Merck said it is delaying in the filing of its acute migraine drug telcagepant for U.S. application. The company said it no longer expects to file a new drug application with the FDA in 2009, and will provide an updated time line once additional information is available.

On a bright note, Merck said its merger with Schering-Plough (SGP) was progressing as planned, with the close anticipated in the fourth quarter. But all of the 2009 guidance provided excludes contributions from Schering-Plough that would result from the merger and any costs incurred upon closing of the merger.

"We believe our planned merger with Schering-Plough will accelerate Merck's transformation into a global health care leader built for sustainable growth and success," Clark said.

Meanwhile, Schering-Plough also reported a year-over-year drop in sales, but its adjusted earnings exceeded projections.

In pre-market trading, Merck shares declined 3.4 percent.

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