Merck tops Street 1Q forecasts on cost cuts, new drug sales

Strict cost controls, along with surging sales of its two newest medicines and a surprisingly strong performance from its entire vaccine portfolio pushed Merck & Co. beyond most expectations for the first quarter and the company boosted its outlook for the year.

The company has begun a new cycle in which sales of its latest drugs grow as revenue fades for older drugs facing new generic competition, particularly its blockbuster cholesterol pills Zetia and Vytorin.

Other Merck drugs are facing more brand-name competition. Meanwhile Merck's crucial diabetes franchise, already under pressure from insurers for bigger discounts, was hurt by a shift in the timing of orders by large U.S. purchasers. Combined sales of its Januvia and Janumet diabetes treatments dipped 5 percent, to $1.34 billion.

Merck's new drugs are picking up the slack, however.

Sales of Zepatier, the hepatitis C drug launched a year ago, rocketed to $378 million, a pace that will soon make it a blockbuster with annual sales topping $1 billion.

Revenue from the cancer medicine Keytruda, one of the top new immuno-oncology drugs that harness the immune system to fight cancer, more than doubled to $584 million.

It's approved for treating melanoma, head and neck cancer, and lung cancer, a fiercely competitive category in which it's the market leader. Keytruda also has pending approvals for bladder cancer, for a rare cancer caused by DNA repair defects and for treating lung cancer in combination with chemotherapy. The latter use could be approved by the middle of next week. Meanwhile, Merck is running scores of other patient tests of Keytruda for still more cancer types.

Merck on Tuesday reported net income of $1.55 billion, or 56 cents per share, up from $1.13 billion, or 40 cents per share, a year earlier.

Earnings, adjusted for one-time gains and costs, were 88 cents per share, a nickel above what analysts expected.

"We're seeing strong performance across all elements of Merck's businesses," CEO Kenneth Frazier told analysts during a conference call.

Merck slashed spending on manufacturing and materials a whopping 16 percent to $3.02 billion, while boosting spending on research and development 8 percent to $1.8 billion in the quarter.

The drugmaker posted revenue of $9.43 billion, also topping Street forecasts for $9.29 billion.

Its prescription drugs business produced $8.19 billion of that revenue, up 1 percent, while its animal health unit had sales of $939 million, up 13 percent.

Merck, based in Kenilworth, New Jersey, raised its financial forecast for the year, saying it expects earnings between $2.51 and $2.63 per share, including one-time items, up from its January forecast of $2.47 to $2.62 per share. It now expects revenue of $39.1 billion to $40.3 billion, up from its January forecast for $38.6 billion to $40.1 billion.

Credit-Suisse analyst Vamil Divan wrote to investors that sales of Januvia and Gardasil, a vaccine against cancer-causing human papilloma virus, drove Merck's total sales above analysts' expectations, but the second-biggest U.S. drugmaker had greater-than-expected declines to older products Zetia, Vytorin and Remicade, an immune disorder blockbuster whose sales plunged 34 percent to $229 million.

In early trading, Merck shares dipped 5 cents to $62.33.

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Follow Linda A. Johnson at www.twitter.com/LindaJ_onPharma