Merck KGaA hikes forecast, eyes deals as cost cuts keep delivering

Once again, Merck KGaA reported a quicker-than-expected payoff from its big cost-cutting program. The German drugmaker hiked its profit forecast for the year, saying the changes it has made are delivering cost savings sooner than it had planned.

Now, Darmstadt-based Merck is looking for earnings (before interest, taxes, depreciation and amortization) of €3.2 billion to €3.25 billion, or up to $4.37 billion. Previously, it had forecast €3.1 billion to €3.2 billion. For the third quarter, EBITDA beat analyst estimates at €830.7 million, an increase of 10% year over year.

"Merck is already stronger today and more profitable than when it started the change process a few years ago," CEO Karl-Ludwig Kley said in a statement.

The company launched its cost-cutting drive after a series of R&D setbacks cut its prospects for near-term sales growth. Among the casualties were its pharma division Serono's headquarters in Geneva and a combined 2,000 or so jobs at Serono operations there and in Darmstadt.

That's why profits are up despite a decline in sales. Overall revenue shrank by 3.1% during the third quarter to €2.75 billion, a bit shy of analyst estimates. At Merck Serono, sales fell by 3.4% to €1.57 billion, thanks to a big hit on exchange rates. The cancer drug Erbitux grew, but Rebif, the multiple sclerosis remedy, suffered on new competition in the U.S., probably from Biogen Idec's ($BIIB) new and fast-selling Tecfidera, an analyst suggested.

So, what's Merck going to do to put revenue growth on the table? Last month, the company shuffled management at its pharma unit, looking for more growth from that business. The new structure puts more emphasis on its allergy business and biosimilars development. The pharma division is also keying in on emerging markets; it recently inked a deal with Bristol-Myers Squibb ($BMY) to market diabetes treatments in China.

Kley said today that all four of the company's divisions are ready to deliver, but he's looking at buyouts, too. "We have four sustainable business divisions that are set to grow organically, but for all four areas we have ideas for steps to go beyond that," Kley said at a press conference (as quoted by Reuters). "But the main point is the continuation of our financial discipline."

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