FILE - This May 1, 2018 file photo shows Merck corporate headquarters in Kenilworth, N.J. Merck & Co. reports earnings Friday, Feb. 1, 2019. (AP Photo/Seth Wenig, File)

Merck 4Q net powered by cancer treatment sales, lower taxes

February 01, 2019 - 9:58 am

Higher medicine sales and lower restructuring and other costs lifted drugmaker Merck to a $1.83 billion profit in the fourth quarter, as it edged past Wall Street expectations.

The maker of blockbuster cancer drug Keytruda and Januvia diabetes pills lost $1.05 billion a year earlier, when it had a $2.92 billion tax bill due to a federal tax overhaul.

Merck shares rose in early trading, despite the drugmaker giving a 2019 financial forecast a bit below analysts' consensus.

The Kenilworth, New Jersey, drugmaker on Friday reported net income of 69 cents per share. Adjusted for multiple non-recurring costs, that amounted to $2.75 billion, or $1.04 per share, a penny better than analysts expected.

Revenue was $11 billion, slightly better than expected and up 5 percent from $10.43 billion in 2017's last quarter. Merck said unfavorable currency exchange rates reduced revenue by 3 percent in the quarter.

During a conference call to discuss the results, Chief Executive Kenneth Frazier told analysts that Merck's investments in research and development, and strong performance across its businesses, resulted in the "highest top- and bottom-line growth the company has seen in years, and we expect the momentum to carry over into 2019."

Sales of prescription drugs totaled $9.83 billion, up 6 percent.

Keytruda, an immuno-oncology that revs up the immune system to treat numerous cancer types, brought in $2.15 billion in the quarter. It generated $7.17 billion in 2018, up 88 percent, and now accounts for more than 20 percent of Merck & Co. revenue.

"We estimate Keytruda sales to exceed $15 billion by 2022. We believe this will lead to meaningful profit-margin expansion over the long term," Edward Jones analyst Ashtyn Evans wrote to investors.

During the quarter, Keytruda won U.S. approval for treating three more patient groups and now has approval for 11 different cancer types. Japan, one of the world's top markets for medicine, approved Keytruda for five different uses during the quarter.

Merck is testing the injected drug in many other cancer types, alone and in combination with other cancer treatments.

Vaccine sales also rose, led by $835 million for Merck's Gardasil 9 vaccine, which protects against a sexually transmitted virus that causes cancer.

But sales of Type 2 diabetes pills Januvia and Janumet, previously Merck's top-selling franchise, dipped to $1.47 billion as insurers continue pressing for lower prices and competition increases in the huge diabetes drug market. Januvia faces generic competition in 2022, but the company said sales of other drugs will make up for lost Januvia revenue.

Sales of veterinary medicines such as the Bravecto flea- and tick-killer for dogs jumped 6 percent to $1.04 billion.

"The company's animal health business and vaccines portfolio are performing well and provide diversification," Evans wrote, noting she thinks Merck's strong financial position will lead it to make acquisitions to supplement its internal drug development.

During 2018, China approved six Merck drugs, plus the use of Keytruda for treating three cancer types.

Merck said it expects full-year earnings in the range of $4.57 to $4.72 per share, with revenue in the range of $43.2 billion to $44.7 billion. Industry analysts had been projecting per-share earnings of $4.69, and revenue of $44.2 billion.

For all of 2018, Merck reported net income of $6.22 billion, or $2.32 per share — more than double its 2017 profit. Sales in 2018 totaled $42.29 billion, up 5 percent.

In morning trading, shares rose $2.40, or 3.2 percent, to $76.84.


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