Merck and Co issued a more cautious 2010 profit outlook on Friday and reported disappointing second-quarter sales of its vaccines and Singulair asthma drug, sending its shares down 2 percent.
The U.S. drugmaker said it had earned $752 million, or 24 cents per share, compared with $1.56 billion, or 74 cents per share, a year earlier.
The results included restructuring costs of $830 million from the company's $41 billion acquisition of Schering-Plough Corp in November.
Excluding these and other special items, profit was 86 cents per share, topping the analysts' average forecast of 83 cents, according to Thomson Reuters I/B/E/S.
Even so, Merck said it now expects 2010 earnings of $3.29 to $3.39 per share, scaling back the top end of its previous forecast of $3.27 to $3.41.
The profit forecast was trimmed due to price cuts on drugs by European governments, J.P. Morgan analyst Chris Schott said. Merck estimated the European price pressures will crimp its full-year European revenue by perhaps $300 million.
Schott said company expenses were lower across the board, one reason for the earnings beat in the quarter. Research costs and spending for selling, general and administrative expenses collectively came in $275 million below his forecast.
(We) expect continued lower cost trends as synergies from the Schering-Plough integration take hold, said Schott.
He predicted Merck's earnings growth, bolstered by the cost savings, will outpace rival large U.S. drugmakers through 2015.
A lower tax rate was a key contributor and accounted for 3 cents of the (earnings) beat in the quarter, Sanford Bernstein analyst Tim Anderson said. He noted the tax rate of 20.5 percent compared with his own forecast of 23 percent.
Global company revenue almost doubled to $11.35 billion, reflecting the addition of Schering-Plough's array of drugs and consumer products, but came in a bit shy of the Wall Street forecast of $11.45 billion.
Combined sales of Merck's newer Januvia and Janumet diabetes drugs, two of its fastest-growing products, jumped 33 percent to $818 million.
Sales of the Isentress treatment for HIV, which recently won expanded approval for use in patients not previously treated for the virus that causes AIDS, jumped 55 percent to $267 million.
Revenue from Cozaar, a blood-pressure drug that began facing U.S. generic competition in April, fell 46 percent to $485 million.
Asthma treatment Singulair, Merck's top-selling drug, had flat sales at $1.26 billion, which Leerink Swann analyst Seamus Fernandez said trailed his forecast by $77 million.
Other sour notes were the Gardasil cervical cancer vaccine and Zostavax, the world's first vaccine to prevent shingles.
Gardasil sales fell 18 percent to $219 million amid continued failure by Merck to win approval to market the product to older girls and women. Zostavax sales plunged to $18 million from $42 million, hurt by manufacturing problems that have limited supplies.
Merck cautioned that U.S. patients will face continued back orders for Zostavax throughout 2010 and possibly into next year, and said no international launches are planned for this year or 2011.
The company said it still expected high single-digit compound annual percentage profit growth from 2009 to 2013, compared with Merck's 2009 earnings. And the drugmaker said it remained on track to achieve annual cost savings of $3.5 billion from the merger by 2012.
Merck said it expected revenue of $45.4 billion to $46.1 billion this year, with U.S. healthcare reforms crimping sales by about $170 million. Sanford Bernstein's Anderson said the top end of the revenue forecast is $300 million less than the company's earlier view.
Merck earlier this month said it planned to phase out eight research sites and eight manufacturing plants as it integrates Schering-Plough's operations. It aims to reduce its workforce by 15 percent.
Shares of Merck fell 71 cents to $34.35 in afternoon New York Stock Exchange trading.
(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn, Phil Berlowitz)