Merck & Co.'s (
NYSE:MRK,
Forum) second-quarter profit plunged by two-thirds, hammered by the sale of its consumer business, unfavourable currency exchange rates, lower sales of some key drugs and hefty one-time charges.
The world's fifth-biggest drugmaker by revenue beat modest Wall Street expectations and raised its full-year profit forecast by a dime per share, but shares still fell 1.3 per cent to $56.25 in early trading.
Edward Jones analyst Ashtyn Evans termed it a “mixed quarter,” with promising new drugs for hepatitis C and cancer getting accelerated regulatory reviews and cost-cutting boosting the bottom line. Those factors were offset by all the charges and the loss of consumer health revenue, which totalled $583 million a year ago.
Focusing on the future, Merck CEO Kenneth Frazier said Merck's portfolio of experimental drugs is improving and introductions of some new products are going well. Those include insomnia drug Belsomra, Zerbaxa for serious and resistant bacterial infections, and Keytruda, approved in the U.S. for advanced melanoma.
“We're investing resources to grow our strongest brands and to support the most promising assets in our pipeline, while at the same time lowering our overall cost base,” he told analysts during a conference call.
The Kenilworth, New Jersey-based company noted experimental hepatitis C combination pill grazoprevir/elbasvir is now being reviewed by regulators in the U.S. and European Union. Hepatitis C is one of the hottest areas in medicine, with a new generation of drugs now curing nearly all patients in just a few months - and bringing in billions of dollars a year. Merck's drug targets patients not helped much by the current drugs, those with a subtype called genotype 4 and those with chronic kidney disease.
Meanwhile, Keytruda is being reviewed for treating melanoma in Europe and for treatment of advanced non-small-cell lung cancer in the U.S.
Merck also announced Tuesday that it's signed an agreement to buy cCAM Biotherapeutics, a developer of cancer immunotherapy treatments, for up to $605 million, hinged on some of its drugs getting approved and meeting sales milestones. Keytruda, which had sales of $110 million in the quarter, also is in that growing new class of drugs, which use different mechanisms to boost the immune system and help it fight cancer.
Merck, which makes the Gardasil cancer vaccine and diabetes pill Januvia, said Tuesday that net income was $687 million, or 24 cents per share. That's down from $2 billion, or 68 cents per share, in 2014's second quarter.
Excluding charges totalling $1.75 billion, or 62 cents per share, Merck said adjusted earnings came to $2.4 billion, or 86 cents per share. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of 80 cents per share.
Among its woes in the quarter, Merck cited a 7 per cent drop in revenue due to last year's sale of its Claritin allergy pills, Coppertone Sun care line and other consumer products to Bayer AG (
OTO:BAYZF,
Forum); its $715 million foreign exchange loss related to re-evaluation of its assets in Venezuela; and the strong dollar reducing the value of sales, which are made in local currencies, by 7 per cent.
Total revenue fell 11 per cent to $9.8 billion, though prescription drug sales fell only 6 per cent. Six analysts surveyed by Zacks expected $9.71 billion.
Sales of top product Januvia edged up 1 per cent to $1.6 billion, while sales rose 4 per cent to $427 million for Gardasil, which protects against sexually transmitted cancers, and 10 per cent to a total of $358 million for all its other vaccines. But sales dropped for cholesterol drugs Zetia and Vytorin, HIV drug Isentress and immune disorder drug Remicade, due to competition and other factors.
Merck said it now expects full-year earnings in the range of $3.45 to $3.55, excluding one-time items. That's up from its April forecast of $3.35 to $3.48 per share. It forecast full-year revenue in the range of $38.6 billion to $39.8 billion.
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Meanwhile, Pfizer Inc. (
NYSE:PFE,
Forum) beat Wall Street's second-quarter expectations and raised its 2015 forecast, as soaring sales for a few key products helped inoculate the world's second-largest drugmaker against a $1 billion revenue hit from foreign exchange rates and its last wave of cheap generic competition hurting former big sellers.
Though net income dropped 10 per cent, shares of the New York-based maker of Viagra started climbed Tuesday.
The drugmaker, which has struggled in recent years, touted its third straight quarter with operational growth and prospects to have 10 drugs in testing by next year in the hot field of immune-oncology - medicines that boost the immune system to better fight cancer.
Rivals Merck & Co. and Bristol-Myers Squibb Co. (
NYSE:BMY,
Forum) have an early lead in the field, with three lucrative medicines between them. But many drugmakers are jumping in.
Pfizer's experimental drugs “could actually be among the first wave” of drugs for ovarian, gastric and bladder cancer and some other types, research head Mikael Dolsten said in an interview.
“We can be competitive in the immune-oncology space,” CEO Ian Read said, saying Pfizer will be able to combine those drugs with each other, with ones from partner drugmakers and with other types of cancer medicines to improve patient outcomes.
Pfizer drew on 37 per cent revenue growth from Prevnar 13, the world's top-selling vaccine, as a recent study showing its effectiveness in preventing pneumonia and other dangerous infections in older adults boosted the vaccine's use. Prevnar 13, which protests against pneumonia, meningitis and other pneumococcal diseases, brought in $1.5 billion during the quarter.
Vaccines are a core research area for Pfizer, which has expanded its research with the goal of essentially protecting customers from cradle to grave. It has new vaccines against meningitis and encephalitis and, if testing goes well, could launch one against deadly Staphylococcus aureus within 3 years.
“Nothing but good news this quarter from Pfizer, including a strong start for its Ibrance drug for breast cancer,” wrote analyst Erik Gordon of the University of Michigan's Ross School of Business.
Ibrance brought in $140 million - roughly double analysts' expectations - and rheumatoid arthritis pill Xeljanz, stymied by entrenched competition, finally gained traction, nearly doubling sales to $128 million.
However, revenue from painkiller Celebrex sank 71 per cent to $224 million, as U.S. generic competition eroded sales. Competition from cheaper generic alternatives, either here or in other countries, also hurt antibiotic Zyvox and Pfizer's top product, fibromyalgia treatment Lyrica.
Net income fell to $2.63 billion, or 42 cents per share. Adjusted for one-time items, that amounted to 56 cents per share, beating analysts' expectations for 51 cents.
Revenue fell 7 per cent to $11.85 billion but still topped forecasts for $11.41 billion. Excluding the impact from currency rates, Pfizer said revenue grew 1 per cent in the quarter.
Pfizer now expects 2015 adjusted earnings of $2.01 to $2.07 per share, up from its previous forecast for $1.95 to $2.05 per share.
Pfizer shares rose 85 cents, or 2.5 per cent, to $35.19 in afternoon trading.
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Blockbuster hepatitis C medicine Harvoni propelled Gilead Sciences Inc.'s (
NASDAQ:GILD,
Forum) second-quarter profit up 23 per cent as total revenue for the biotech drugmaker jumped 26 per cent and it raised its 2015 sales forecast for the second time. Its shares jumped in after-hours trading.
Harvoni and a second hepatitis C drug, Sovaldi, together posted sales about $500 million above expectations and HIV medicine sales were higher-than-expected across all products, noted Edward Jones analyst Ashtyn Evans. She called the quarter “impressive,” noting expenses were below expectations, too.
Gilead, based in Foster City, California, said Tuesday that its net income was $4.49 billion, or $2.92 per share. That was up from $3.66 billion, or $2.20 per share, in 2014's second quarter. Analysts, on average, expected $2.64 per share.
Revenue soared to $8.24 billion, up from $6.54 billion a year ago and above expectations of $7.36 billion.
Gilead's market-leading hepatitis C franchise accounted for a whopping 59 per cent of revenue, with Harvoni bringing in an astounding $3.61 billion after just 10 months on the market, and its predecessor, Sovaldi, drawing $1.29 billion.
Gilead, until recently known mostly for its widely used HIV medicines - Truvada, Stribild and Complera - catapulted to become the world's ninth-biggest drugmaker by revenue, up from No. 20 last year, propelled by Harvoni and, to a lesser extent, by Sovaldi. That was launched in December 2013, followed by Harvoni last October.
Harvoni, which carries a list price of about $95,000 for a 12-week course of treatment, includes Sovaldi and a second drug, ledipasvir. The company says it cures 96 per cent to 99 per cent of previously untreated patients with the liver-destroying virus. Since its approval last October, sales have plunged for Sovaldi, which costs about $84,000 for a course of treatment. Insurers have been extracting discounts estimated at up to 40 per cent, though, and to date about 470,000 patients have received one of the drugs.
Those drugs and AbbVie Inc.'s (
NYSE:ABBV,
Forum) Viekira Pak, launched in December, have revolutionized treatment for hepatitis C, which for decades required pills and periodic injections that caused awful flu-like side effects, lasted for up to a year and only cured about 60 per cent of patients.
The high prices have led some U.S. insurers to deny coverage to patients who don't yet have hepatitis complications, and the Veterans Administration has run out of funds for treatment temporarily.
However, Paul Carter, Gilead's marketing head, said the market is still in early days, “with many more patients to be identified and treated,” and that the company is working to expand health plan coverage in the U.S. and Europe. It will soon launch the drugs in Japan and other countries.
Roughly 2.7 million Americans have it and millions more in other countries are infected. Over many years, it silently causes cirrhosis, liver failure requiring a transplant, liver cancer and other damage. The three new drugs have slashed treatment time to 12 weeks - even 8 weeks for those not too ill - and boosted cure rates to more than 90 per cent, depending on which of several strains, or genotypes, the patient has and how advanced their disease is.
In the HIV franchise, Truvada posted sales of $849 million, and Stribild had $447 million, both up sharply, while Atripla sales dipped to $782 million. Other, smaller drugs had combined revenue of $495 million.
Despite the strong results, Evans said she has a “Hold” recommendation on Gilead shares because more competition is coming in hepatitis C: a Merck & Co. drug that could be approved at the start of 2016 and one from Bristol-Myers Squibb Co., possibly the following year, that will be a smaller player.
“That'll only be good for patients,” Evans said. “It'll give them options and hopefully lower the price.”
Gilead raised its revenue forecast to $29 billion to $30 billion for the full year, up from its initial 2015 forecast in February for $26 billion to $27 billion. It kept its earnings per share forecast at 82 cents to 87 cents per share.
In after-hours trading, Gilead shares added $3.37, or 3 per cent, to $116.44.