It may not have been pretty, but Merck & Co. ($MRK) was able to piece together enough cost cuts and revenue surprises to exceed analysts' expectations for earnings, and push its forecast higher for the year. Foreign exchange hits and divestiture costs took a toll, but sales of its immuno-oncology drug Keytruda exceeded expectations for Q2, as did Cubicin--the antibiotic it got in its $8.4 billion purchase of Cubist Pharmaceuticals earlier this year.
It had second quarter non-GAAP earnings of 86 cents a share, beating analyst estimates of 81 cents. It also said it now expects the momentum to carry it through to an earnings range of $3.45 to $3.55 a share for 2015, up from the $3.35 to $3.48 a share that it earlier projected.
Its total revenues, however, were $9.79 billion for Q2, down from $10.93 billion a year ago, as it faced a 7% hit on the strengthening dollar and a 7% impact from the sales of its consumer care business to Bayer. Pharmaceuticals, its largest category, was off by 6% to $8.56 billion. Sales from its animal health division fell 4% to $840 million. In a call with investors, Merck said it still likes that business and has no plans to sell it, Bernstein analyst Tim Anderson told investors in a note.
|Merck CEO Ken Frazier|
"We've made significant progress this quarter in two of our most important assets, the Keytruda and hepatitis C programs, and will be fully prepared to take advantage of these potentially breakthrough opportunities," CEO Ken Frazier said in a statement.
Frazier said the FDA has accepted its application for its combo med grazoprevir/elbasvir, Merck's entry into the oral hep C category.
Cancer fighter Keytruda turned in $110 million in sales for the quarter, which was $10 million better than the forecasts of analysts polled by Bloomberg. It is already approved for treating skin cancer and awaiting approval for use in lung cancer. To keep its momentum in oncology, the drugmaker said it will pay up to $605 million for an Israeli biotech that is doing work in the hot immuno-oncology field.
Cubicin hit $293 million in sales, a $20 million improvement over forecasts, but Merck's blockbuster Remicade was hurt by biosimilar competition, with sales falling 25% to $455 million. The company expects to see further declines in sales for the arthritis med in the second half, analysts were told. Discounting of biosimilars in Europe by as much as 50% by Hospira ($HSP) and others has surprised analysts, who expected to see biosimilar prices to run 70% to 80% of the biologics they mimic.
The FDA has given a priority review to Merck's hep C contender and a decision is expected Jan. 28. Merck is coming in late to that market and its treatment will compete against Gilead Sciences' ($GILD) barn-burners Sovaldi and Harvoni, as well as AbbVie's ($ABBV) combo Viekira Pak, which have been battling it out for market share. But rather than get into the pricing wars that those two companies were forced into by payers upset about expenses, Merck intends to focus its efforts on hard to treat patients.
- here's the release