Merck to buy $5B in stock from Goldman Sachs in jump-start for repurchase plan

Merck CEO Kenneth Frazier

Generic competition, sales woes and R&D disappointments have put revenue on the decline and Merck ($MRK) in hot water, with the pharma giant earlier this month promising to buy back as much as $15 billion in shares. And yesterday, the company started in on a big chunk of that buyback, inking a deal to buy $5 billion of its own shares from Goldman Sachs.

Announced yesterday after the market closed, the buyback--with an initial delivery of about 99.5 million shares--is set to be completed by the end of November and should help the company preserve its investor relations during troubled times. Interestingly enough, the company's shares rose 5% yesterday, closing at $47.33 just before the repurchase announcement.

"This accelerated share repurchase demonstrates our commitment to delivering increased value to shareholders in the short term, while continuing to invest in the important opportunities that will drive our long-term growth," CEO Kenneth Frazier said in a statement.

Analysts agree that the move is a step in the right direction for Merck, whose first-quarter sales of top-selling asthma drug Singulair dove 75% to $337 million in the face of generic competition, according to Reuters. And there's more to come: Migraine drug Maxalt, now off patent, will lose market exclusivity this year, and brain cancer treatment Temodar is slated to lose patent protection in 2013.

"We don't have consensus share count post-Q1 earnings to quantify the impact of the accelerated repurchase, but we believe this is a positive sign of Merck attempting to create shareholder value," ISI Group analyst Mark Schoenebaum said in an investor note.

While those losses were to be expected, diabetes drug Januvia has been the real head-scratcher for Merck. In Q1, sales of the drug brought in only $884 million, registering 4% less than last year and nearly 19% lower than analyst expectations. The company cited inventory reductions to account for the drug's poor performance.

The company is relying on a handful of new drug approvals to help stop the bleeding, but its R&D efforts have suffered a series of setbacks. Suvorexant, a sleep drug and potential blockbuster, is under FDA review today amid a flurry of safety concerns. In an attempt to turn things around, the company recently brought in Amgen ($AMGN) vet Roger Perlmutter to head R&D. While the buyback may placate investors, it won't lift the company out of its development slump.

- read the release
- check out the Reuters article
- see Bloomberg's take

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