Fast cost-cutting puts Merck KGaA a year ahead on financial targets

Merck KGaA is a year ahead of schedule. The German drugmaker, which has been slashing payrolls and shutting facilties to save money, said it would meet its 2014 sales and earnings targets this year instead.

The company's first-quarter profits jumped, thanks to its progress at cost-cutting, with net income up by almost half to €266 million. Revenues grew across the board, to €2.76 billion. While cost cuts helped boost the bottom line, price increases aided the growth in revenues. The company's multiple sclerosis drug Rebif, which remains its best seller, swelled by 6% to €454 million for the period, thanks to higher prices in the U.S. and increased volume in Europe.

For the full year, Merck now expects sales of up to €10.9 bilion, or $14.1 billion, with earnings before intererest, taxes, depreciation and amortization are predicted to come in at up to €3.2 billion, or $4.14 billion. Its earnings per share range is now €8.50 to €9.00. Among the one-time costs Merck expects this year is €230 million related to its job cuts and other efficiency moves.

The company's cost-cutting program, "Fit for 2018," is moving more quickly than originally planned. Merck now expects to save €165 million from its cost squeeze this year.

Meanwhile, on the sales side, U.S. revenues grew on Rebif price increases, and emerging markets sales grew by 8.3%. European sales, though the largest share of overall revenues, hardly budged, with 0.7% organic growth during the quarter. Besides the growth in Rebif sales, Merck reported a 6.6% increase in sales of its cancer drug Erbitux, to €222 million.

Merck's Serono division, after a series of setbacks in drug development, was targeted for big cuts in jobs and costs last year. The German-based drugmaker decided to shut down the group's Geneva headquarters, which it had maintained since buying Serono in 2007. The decision touched off a storm of protest in Switzerland. Since then, the company has decided to move some of the former headquarters jobs to another Swiss location and helped fund a half-dozen biotech spinoffs to be run by former Serono employees. The company also announced another 1,100 job cuts in Germany, spreading the burden to its home country.

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