Analysis: Street likes Schering, Merck
By STEVE MITCHELL
UPI Senior Medical Correspondent
WASHINGTON, Jan. 31 (UPI) — Schering-Plough impressed analysts with fourth-quarter profits that surged 75 percent and were driven by robust sales of its cholesterol drug joint venture with Merck.
Credit Suisse analyst Catherine Arnold applauded Schering-Plough's performance, particularly the Merck joint venture, which includes the drugs Vytorin and Zetia.
“We were encouraged by (Schering-Plough's) fourth quarter results, as they affirmed the two main tenets of our “outperform” thesis: gross margin expansion and cholesterol JV strength,” Arnold stated in a research report.
Schering-Plough's gross margin for the quarter was 67.2 percent, exceeding her estimate of 66.2 percent, while sales of Vytorin and Zetia increased to $1.1 billion, in line with her forecast.
However, Arnold lowered her forecast for 2007 revenues from cholesterol products by $119 million due to a reduction in expectations for Vytorin. She reduced her estimate for Vytorin sales by $370 million but said her expectations for the drug's uptake are “still positive.”
Arnold increased her forecast for Zetia by $251 million “based on the drug's continued surprisingly strong performance as a monotherapy and in combination with various statins.”
Arnold did not respond to United Press International's request for comment.
Schering-Plough said net income for the fourth quarter rose to $182 million, or $0.12 per share. Net income for the full year jumped to $1.06 billion.
Sales for the quarter increased 14 percent to $2.65 billion, while sales for the full year totaled $10.6 billion, an 11-percent increase.
“We have been growing the top line, maintaining financial discipline and driving higher earnings,” said Fred Hassan, Schering-Plough's chairman and chief executive officer.
“In 2007, we look forward to further advances in becoming the long-term, high-performance company of our aspirations,” Hassan added.
Steve Galpin, spokesman for Schering-Plough, told UPI the company “recorded a strong performance” across both geographic areas and major product lines.
Galpin said the numbers were driven in part by sales of Vytorin and Zetia; Schering expects to continue their strong performance this year.
“The company expects sales of the cholesterol franchise to increase in 2007,” he said.
Schering did not offer guidance for 2007. Galpin said the company has not done that since 2003.
But Schering is anticipating the release of data on three key compounds in phase 2, including a thrombin receptor antagonist for acute coronary syndrome, vicriviroc for HIV infection and a protease inhibitor compound for hepatitis C, he said.
Merck, which co-markets Vytorin and Zetia with Schering-Plough, this week reported a 58-percent decline in fourth-quarter profits. Revenue increased 4.8 percent to $6.04 billion.
Sales of Merck's Zocor fell 65 percent to $379 million. The patent on the drug expired in June, so it is now up against generic competition.
Sales of its diabetes drug Januvia came in at $42 million, while Gardasil sales hit $155 million.
“The impressive sales performance of our newer and in-line products coupled with the rapid uptake of new, first-in-class vaccines and medicines like Gardasil and Januvia, speaks to the strength of our underlying business and product portfolio,” said Richard Clark, Merck's president and CEO.
“These results clearly set the stage for our performance in 2007 as well as continued progress toward our long-term financial targets,” Clark added.
Bank of America analyst Chris Schott liked Merck's fourth-quarter performance, calling the strong topline and new product launches encouraging.
“In particular, we were encouraged that newly-launched products, including Gardasil and Januvia, were well above our forecasts,” Schott stated in a research report issued Wednesday.
He increased his 2007 estimates for Gardasil and Januvia to $1 billion and $430 million, respectively.
However, the year ahead could be challenging for Merck.
“After a strong run in '06, we see fewer positive catalysts for (Merck) shares in '07 given the high launch expectations embedded in the stock,” Schott stated.
The company is also facing more than 46,000 Vioxx plaintiffs. Schott is forecasting Merck will ultimately be responsible for $11 billion to $15 billion in liability associated with the drug.
Bank of America did not respond to a request from UPI for comment from Schott.
