Reuters: Global Markets: Merck's Januvia, animal health products slump; shares off

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Merck's Januvia, animal health products slump; shares off Oct 28th 2013, 13:43 Share this Email Print Reprints By Ransdell Pierson Mon Oct 28, 2013 9:43am EDT (Reuters) - Merck & Co Inc (MRK.N) reported better-than-expected third-quarter earnings on Monday thanks to cost cutting, but lower sales of its Januvia diabetes treatment added fresh evidence its biggest product was losing ground to newer drugs. Shares dropped 2.2 percent in early trading. Moreover, sales of Merck's animal health products, which typically prop up results, fell 2 percent in the third quarter, hurt by the recent decision to suspend sales of its Zilmax weight-gain feed supplement amid concerns it was causing lameness in cattle. "The fundamentals of the business remain solid despite what we saw in the quarter," Chief Executive Ken Frazier told analysts on a conference call, referring to the animal health unit. Global sales of Januvia fell 5 percent in the quarter to $927 million. Combined sales of the pill and a related drug called Janumet fell 1 percent to $1.4 billion, versus 5 percent growth in the prior quarter, and marked a return to declines in the first quarter. "It looks like Januvia might be plateauing," said Morningstar analyst Damien Conover, adding the trend could continue to put pressure on Merck's profits as it strives to develop new medicines. Januvia sales have grown by leaps and bounds since the drug was approved in 2006 - the first member of a new class of oral diabetes treatment called DPP4 inhibitors. But three similar drugs have been introduced since then and are taking market share from Januvia, including Bristol-Myers Co's (BMY.N) Onglyza, and Tradjenta from privately held Boehringer Ingelheim and Eli Lilly and Co (LLY.N). Merck said the falling number of Januvia prescriptions in the quarter was a surprise and cause for concern. "If the volumes continue to decline, definitely it will be a problem for us," Adam Schechter, head of global human health at Merck, said on the conference call. Faced with Januvia's stall and setbacks in recent years for many of its experimental drugs, Merck said early this month it will cut annual operating costs by $2.5 billion and eliminate 8,500 jobs, or more than 10 percent of its global workforce. Like other drugmakers that have slashed costs in the past three years, most notably Pfizer Inc (PFE.N), Merck said it will narrow its focus to products with the best chance of winning regulatory approval and achieving substantial sales. That means it will scrap some drugs already in late-stage trials, while licensing products from other drugmakers. The company earned $1.12 billion, or 38 cents per share, in the third quarter, compared with $1.73 billion, or 56 cents per share, in the year-earlier period. Excluding special items, Merck earned 92 cents per share. Analysts, on average, expected 88 cents per share, according to Thomson Reuters I/B/E/S. Merck said the better-than-expected earnings was largely due to efforts to manage costs across the board. Research and development spending was lower in part because costly late-stage trials of some medicines had been delayed until the fourth quarter. Company sales fell 4 percent to $11.03 billion, below Wall Street estimates of $11.12 billion. They would have fallen 2 percent if not for the stronger dollar, which lowers the value of sales in overseas markets. Merck's Gardasil vaccine to prevent cervical cancer was a bright spot in the quarter, with sales rising 15 percent to $665 million, helped by additional sales to government healthcare providers. And sales of Remicade, used to treat rheumatoid arthritis, rose 12 percent to $574 million. Merck expects full-year earnings of $3.48 to $3.52 per share, excluding special items. Early this month, it forecast $3.45 to $3.55 per share. Merck shares fell $1.04 to $45.50. (Reporting by Ransdell Pierson in New York; Editing by Jeffrey Benkoe) Link this Share this Digg this Email Reprints

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