Merck KGaA posts rise in 1Q drug sales, net income plunges nearly 50 percent

Merck KGaA announced Tuesday that sales from its Serono unit rose 5.4 percent in the first quarter to 1.4 billion euros ($1.8 billion), boosted by revenue from its fertility, endocrinology and cardio-metabolic care and general medicines businesses, notably in emerging markets. Sales from Rebif increased 2.7 percent year-over-year to 430 million euros ($549 million) due mainly to price increases in the US, while sales of Erbitux climbed 1.3 percent to 214 million euros ($273 million).

The company noted that quarterly sales of Rebif grew by 31 percent in emerging markets, helped by an increase in healthcare spending in Venezuela, but declined in Europe as cost-containment measures made for a difficult economic environment on the continent. With regard to Erbitux, Merck said first-quarter revenue remained relatively flat in Europe, where stronger UK sales were offset by cost-containment measures in other countries. In emerging markets, sales for the cancer drug grew by 7 percent, whereas a strong performance in Australia was offset by a sales decline in Japan due to growing competition, the company said. Meanwhile, revenue from the infertility treatment Gonal-f gained 13 percent over the prior-year period to 152 million euros ($194 million), as the introduction of a new line of ready-to-use injection pens helped boost sales.

Overall, the company said that net income plunged 49 percent to 174 million euros ($222 million), as sales rose 3.2 percent to 2.6 billion euros ($3.3 billion). "Merck delivered a reasonable operating performance in the face of a difficult year-over-year comparison," commented CEO Karl-Ludwig Kley, adding that "our focus during 2012 will be to deliver a solid operational performance while bringing our cost structure more in line with our competitors and peers."

The drugmaker said earlier this year that it would close the Swiss headquarters of its Serono division and transfer 750 employees to other locations, as part of a broader plan of cost-cutting measures. The cost-reduction plan includes cutting 500 jobs in Geneva, Switzerland, as well as 80 positions across three manufacturing sites in the country. The company said it will not consider major portfolio divestments or transformational acquisitions prior to completing its efficiency programme, but will focus on optimising organic sales growth and continue to complete bolt-on acquisitions.

Merck stated that it seeks net cost savings of 300 million euros ($383 million) within the Serono unit by 2014, a target expected to incur one-off charges of about 600 million euros ($767 million) during 2012 to 2014. JPMorgan Chase & Co. analyst Richard Vosser indicated the market may be disappointed about the target, while Edward Dulac of Barclays Capital commented, "we struggle to build a compelling investment thesis around a mature pharma business with limited pipeline punch and declining royalty income."

With regard to profitability expectations for Serono, the company said it anticipates a "modest increase before efficiency savings." For 2014, Merck upwardly adjusted its earnings per share of 8.2 euros ($10.5) to 9 euros ($11.5) on sales of 10.4 billion euros ($13.3 billion) to 10.7 billion euros ($13.7 billion).

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