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Merck Profit Rises, but Sales Fall; Schering-Plough Net Surges
October 25, 2005
Merck & Co.'s third-quarter net income rose 7.2% as its partnerships with other drug companies paid off. But revenue continued to slide and Chief Executive Richard Clark gave a vague hint of a plan to improve performance.
Net income rose to $1.42 billion, or 65 cents a share, from $1.33 billion, or 60 cents a share, a year earlier. Sales fell 2.2% to $5.42 billion from $5.54 billion, mostly as a result of the loss of revenue from Vioxx, which was pulled from the market in September 2004 amid safety concerns. The rise in profit stemmed largely from a $173 million increase in equity income from affiliates such as Schering-Plough Corp., with which Merck sells the cholesterol drug Vytorin.
Separately, Schering-Plough said third-quarter net income more than doubled, helped by sales of drugs to treat hepatitis C and arthritis as well as cholesterol. The Kenilworth, N.J., drug maker posted net income of $65 million, or three cents a share, up from $26 million, or a penny a share. Sales rose 15% to $2.28 billion from $1.98 billion.
Vytorin, a combination of two drugs -- Merck's Zocor and Schering-Plough's Zetia -- isn't counted in Schering-Plough sales because of accounting rules. The two companies split profits from the venture about evenly. Schering-Plough said equity income from the venture was $215 million, up from $95 million a year earlier.
Some analysts said sales from the cholesterol venture fell short of their forecasts, which could feed into fears about the impact of generic statins, a class of cholesterol drugs. Schering-Plough said it expects sales and profits from the venture with Merck to grow next year, but it couldn't predict the impact of generic statins.
Meanwhile, Vioxx-related lawsuits continued to pile up against Merck. As the second Vioxx trial begins to wrap up this week in New Jersey, Merck announced that as of September, there were about 6,400 lawsuits filed against it, up from fewer than 5,000 a few weeks earlier. The company's general counsel, Kenneth Frazier, reiterated on a conference call that Merck plans to defend itself against each case individually.
Merck, based in Whitehouse Station, N.J., expects to launch several vaccines soon, but none of the medicines in its late-stage pipeline is expected to replace the revenue it has enjoyed from blockbuster products such as Zocor, which loses patent protection in the U.S. next year, and Vioxx, which at its peak contributed $2.5 billion in annual sales.
Mr. Clark, who took over as Merck's chief executive in May, said during the conference call with analysts that "we must improve our performance over the long term" and that by the end of the year he would provide details about "our plans." He wouldn't elaborate.
Merck is dealing with precipitously declining sales of Zocor. The cholesterol medicine has lost patent protection overseas and will lose patent protection in the U.S. next year. World-wide sales of Zocor in the quarter fell 14% to $1.05 billion.
Sales of asthma drug Singulair rose 11% to $692 million. The company's Cozaar/Hyzaar blood-pressure pills saw sales increase 6% to $751 million. But sales of osteoporosis drug Fosamax were flat at $777 million.
Meanwhile, Schering-Plough's latest results included a charge of eight cents a share for a research-and-development payment to Johnson & Johnson's Centocor unit and a gain of three cents a share for a tax matter.
The results signaled progress in turnaround efforts by Schering-Plough, which a couple of years ago faced the patent expiration for its Claritin allergy drug and safety-related problems at some manufacturing plants. "We have halted a downward spiral of performance," said Chief Executive Fred Hassan.
Separately, German pharmaceutical firm Schering AG, which isn't associated with Schering-Plough, reported a 29% rise in third-quarter net profit, helped by higher sales and lower costs. Schering posted net profit of 160 million, or about $231 million, compared with 124 million a year earlier. Sales increased 10% to 1.34 billion.
Germany's Schering Posts
A 29% Increase in Earnings

October 25, 2005
Germany's Schering AG Monday reported a 29% rise in third-quarter net profit, lifted by stronger sales of its birth-control pill and lower costs.
Schering, based in Berlin, said net profit rose to 160 million ($191.2 million), or 85 European cents a share, in the latest three months from 124 million, or 64 cents a share, a year earlier.
Schering, Germany's third-largest pharmaceutical company by revenue, said its sales increased 10% to 1.36 billion from 1.24 billion.
Oral contraceptive Yasmin, the company's second best-selling product, was the main growth driver, with sales rising 34% in the third quarter to 165 million.
The company said sales of multiple-sclerosis treatment Betaseron rose 8% year-on-year, although they declined 6% in the U.S. to $94 million.
Schering raised its profit-margin guidance to over 17% from its previously stated goal of between 16.5% and 17% for this year. "This means that we will already come close to our set profitability goal of 18% for 2006 in this year," Chief Executive Hubertus Erlen said in a statement. Schering had a 2004 operating margin of 15.5%.
Schering reiterated that it expects sales to rise less than 10% for the full year.
Chief Financial Officer Jorg Spiekerkotter said the quarterly results were the best in the company's history, and said its program to trim costs by cutting jobs and closing plants helped it improve its net profit. "We will continue to drive the measures to increase profitability," he said.
In the first nine months of the year, Schering's net profit rose 25% to 480 million, or 2.53 a share, compared with 385 million, or 2.01 a share, in the same period last year. Sales were 3.9 billion for the latest nine months, compared to 3.6 billion a year earlier.
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