Merck & Co
Merck's shares rose 2.7 percent on Thursday as the company outlined its prospects and plans at an investor meeting at its headquarters in Whitehouse Station, New Jersey.
Chief Executive Kenneth Frazier said the No. 2 U.S. drugmaker is confident that we are taking the right steps to ensure that Merck is generating profitable sales growth to drive improved returns and even greater cash flow.
The company raised its quarterly dividend by 4 cents to 42 cents a share and said it expects sales next year to be at or near the 2011 level.
Frazier took over as CEO in January, winning a promotion that some perceived as a reward for digging Merck out of the Vioxx disaster on better-than-expected terms. Analysts had expected that settling the Vioxx lawsuits would cost the company $12 billion.
But Frazier, who was general counsel at the time, insisted on trying each case individually. And after Merck won several cases before juries, plaintiffs were forced in 2007 to settle for $4.85 billion.
It's ironic that the person responsible for getting Merck out of its Vioxx troubles is the first to reinstitute a dividend increase, said Citigroup analyst John Boris.
Frazier said Merck is committed to returning cash to shareholders. Since the beginning of 2010, Merck has returned more than $9 billion in the form of dividends and has repurchased about $3 billion of its own shares.
Investors are looking at big-cap pharmaceutical companies as ATMs, said David Moskowitz, an analyst at Roth Capital. Whoever can return the most to shareholders gets the better multiple.
Merck's shares were up 3.2 percent at $34.87 at midday, off a year high of $37.65 in May. That gives it a price-to-earnings ratio of nearly 9 based on estimated 2012 earnings, compared with a peer group average of 10.9 according to Thomson Reuters data.
FIVE NEW DRUGS
Merck, which has suffered a number of regulatory setbacks in recent years, said it expects to file for U.S. approval of five new drugs in 2012 and 2013, including Bridion, its long-delayed treatment to reverse anesthesia, and Tredaptive, its drug to boost good HDL cholesterol.
The company also expects to file for approval of its experimental osteoporosis drug odanacatib; its insomnia drug suvorexant; and its V503 cervical cancer vaccine. It also expects to file for approval to sell three existing drugs for new indications.
Meanwhile, Merck is counting on newer drugs like Januvia, its treatment for diabetes, and Victrelis, its treatment for hepatitis C, to cushion the blow when its biggest product -- the $5 billion-a-year asthma drug Singulair -- faces competition in the coming year from U.S. generics.
For the longer term, Merck's products in development include anacetrapib, a treatment for atherosclerosis; MK-3102, a once-weekly treatment of type 2 diabetes that is expected to begin late-stage trials next year; MK-3222, a monoclonal antibody for psoriasis due to enter late-stage trials next year; and MK-5172, a once-daily hepatitis C treatment that began mid-stage trials earlier this year.
The company is also developing a potentially new type of Alzheimer's disease drug. A mid-stage trial is expected to begin next year.
Merck has a broad late-stage pipeline that is not reflected in its shares, in our view, Chris Schott, an analyst at J.P. Morgan, said in a research note. We see Merck shares as well positioned heading into 2012 based on our expectation for continued solid financial execution and ahead of a number of pipeline updates.
Merck is also working on biosimilars, generic forms of expensive biotech drugs. The company plans to have four biosimilars in late-stage trials next year, one fewer than it previously forecast. Merck cited the absence so far of clear guidelines from U.S. regulators as to how to win approval.
Merck said it sees a biosimilar version of Amgen Inc's
Merck's drug pipeline expanded in late 2009 when it paid $41 billion to acquire rival Schering Plough Corp, whose most important experimental drug was vorapaxar, a blood thinner. In January, studies showed it was unsuitable for stroke patients, but investors hope it may prevent heart attacks among other high-risk populations.
Merck has one of the industry's biggest research budgets -- at $7.8 billion to $8 billion a year -- even after paring back some in the third quarter.
Merck said in July it plans to cut 12,000 to 13,000 jobs by late 2015 to generate additional annual cost savings of up to $1.5 billion that can be invested in research and acquisitions. It cut a net 6,000 positions last year.
Wall Street expects Merck's earnings to grow only 2 percent in 2012, hurt by plunging sales of Singulair. Earnings are expected to increase 10 percent this year.
But analysts expect earnings growth to ramp up sharply in 2014 and beyond, making Merck one of the industry's top performers.
(Writing by Toni Clarke in Boston; editing by Michele Gershberg, Gerald E. McCormick and John Wallace)