Merck Profit Tops Analyst Estimates on Diabetes Drugs

Merck & Co. (MRK), the second-largest U.S. drugmaker, reported first-quarter profit that beat analyst estimates on higher sales of diabetes treatments.

Net income rose 67 percent to $1.74 billion, or 56 cents a share, from a year earlier, the Whitehouse Station, New Jersey- based company said today in a statement. Earnings per share excluding one-time items beat by 1 cent the 98-cent average of 18 analyst estimates compiled by Bloomberg.

Revenue climbed 1.3 percent to $11.7 billion, boosted by higher sales of the Januvia and Janumet diabetes drugs. Merck has been cutting thousands of jobs and trying to boost demand of existing products to prepare for when asthma treatment Singulair faces cheaper copies in August. Analysts say the focus now turns to the company’s medicines in development after research setbacks in recent years.

“Merck is emerging from a challenging 2011,” said Tony Butler, an analyst with Barclays Capital Inc. in New York, in a April 16 research report. “The stock has been on a path of recovery since last November, but this has been more correlated with the dividend increase and flow into the pharma sector as a whole than a restoration of sentiment around Merck’s innovation core.”

Merck boosted its dividend by 11 percent in November, the first increase since 2004. First-quarter net income in 2011 was $1.04 billion, or 34 cents, when Merck took a $500 million charge to settle a dispute with Johnson & Johnson. (JNJ)

Merck Shares

Merck rose less than 1 percent to $38.57 at 10:11 a.m. New York time. The shares had gained 9.7 percent in the 12 months before today.

Merck reiterated its 2012 forecast for earnings excluding one-time items of $3.75 to $3.85 a share, with net income projected to be $2.04 to $2.30. Revenue this year will be at or near 2011 levels on a constant currency basis, Merck said. At current exchange rates, sales would be hurt by 2 to 3 percent, according to the company.

Sales of Januvia jumped 24 percent to $919 million, while revenue from Janumet surged 29 percent to $392 million. The company’s human papillomavirus vaccine Gardasil increased 33 percent to $284 million.

Merck has five major products in development that the company is focusing on over the next two years. Investors are concerned about Merck’s research operations after the company halted a study of its experimental blood thinner vorapaxar, said Butler.

“Investor reactions toward these five candidates can be described as lukewarm if not cynical,” Butler said in the report. “Operational results in the quarter are unlikely to change sentiment, and we believe that Merck needs to deliver on pipelines to restore enthusiasm towards the stock.”

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