Earnings Preview: Merck to focus on new drugs

TRENTON, N.J. (AP) ? Merck & Co., a Dow component, will focus on its experimental drugs in late-stage development and on several products driving growth when it reports its third-quarter earnings before the stock market opens Friday.

WHAT TO WATCH FOR: CEO Kenneth Frazier will discuss sales of key products and new ones on the horizon as Merck tries to retain momentum after its top seller, Singulair for asthma and allergies, got U.S. generic competition on Aug. 3. Sales have plunged since then.

Singulair was the world's 11th-best-selling drug in 2011, generating sales of $5.5 billion. That's more than 10 percent of revenue for Merck, the world's third-biggest drugmaker by revenue.

Merck has said it expects to apply for regulatory approval to sell several major new products between 2012 and the end of 2013.

Those include suvorexant, a new type of insomnia drug with minimal morning grogginess, and vorapaxar, an anticlotting drug for preventing heart attacks and strokes in certain patients. The others are osteoporosis drug odanacatib, cholesterol medicine Tredaptive, ovarian and non-small cell lung cancer drug vintafolide, a drug to reverse the effects of anesthesia called Bridion and an improved version of Gardasil, Merck's blockbuster vaccine against sexually transmitted cancers caused by human papilloma virus.

None of those applications have been submitted yet, so Frazier is expected to give an update on those plans.

Another experimental drug, ridaforolimus for treating recurrence of rare cancers in bones, muscles, blood vessels and fat, was blocked by the Food and Drug Administration this summer. The agency said it won't approve the drug unless Merck does further testing. Company executives may discuss how they will address that.

Executives will discuss progress on other experimental drugs, including a new diabetes medicine known as MK-3102 recently shown to significantly lower blood sugar without much risk of dangerous hypoglycemia. The company also recently licensed rights to two experimental HIV drugs, to complement a third one Merck has in midstage testing.

Analysts will be watching sales trends for Merck's surging franchise of pills to treat increasingly common Type 2 diabetes, led by Januvia, as well as sales of Gardasil, shingles vaccine Zostavax, HIV drug Isentress and new hepatitis C drug Victrelis.

Analysts may ask about Merck's announcement this month that it plans to move its sprawling, preserve-like headquarters for the past 20 years from Whitehouse Station 25 miles across New Jersey to Summit. It's part of ongoing efforts to lower costs and reduce real estate holdings since Merck's November 2009 acquisition of fellow New Jersey drugmaker Schering-Plough Corp.

WHY IT MATTERS: The plunge in Singulair sales due to new U.S. generic competition likely will reduce total revenue and could hurt net income, depending on how well Merck continues to cut costs. But the company has experience bouncing back when patents expire for drugs that produce a tenth or more of total sales. Merck continued to post strong profits after that happened to Fosamax for osteoporosis, in 2008, and Zocor for high cholesterol, in 2006.

Analyst Catherine Arnold of Credit Suisse wrote to investors this week that she expects "manageable" pressure on profit margins after Singulair. She added that Merck remains the "value pick" among major pharmaceutical companies she follows, given its pipeline potential, attractive share price and upcoming data on a few drugs that could boost the stock.

WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of 93 cents and sales of $11.57 billion.

LAST YEAR'S QUARTER: Merck reported profit of $1.69 billion, or 55 cents per share, on revenue of $12.02 billion.

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Linda A. Johnson can be followed at http://twitter.com/LindaJ_onPharma

Source: http://news.yahoo.com/earnings-preview-merck-focus-drugs-103247682--finance.html

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