Earnings Preview: Merck & Co.

With generic Singulair looming, Merck to stress new and experimental drugs in 2Q earnings call

Associated Press

TRENTON, N.J. (AP) -- Merck & Co., a Dow component, reports its second-quarter earnings before the stock market opens Friday. The drugmaker will stress that it has six experimental drugs wrapping up testing and other efforts under way to boost revenue and profit as it braces for competition from generics.

WHAT TO WATCH FOR: CEO Kenneth Frazier will give a detailed update on Merck's strong pipeline of experimental drugs, which is crucial as generic competition looms for top seller Singulair, a pill for asthma and allergies.

Merck, the world's third-biggest drugmaker by revenue, now expects to apply for regulatory approval to sell six major new products between now and the end of 2013. That's up from the five expected just a few months ago, thanks to a recent deal to buy the rights to an experimental medicine from cancer drug developer Endocyte Inc.

Later this year Merck will apply for approval of suvorexant, a new type of insomnia drug with minimal morning grogginess. The other experimental medicines include osteoporosis drug odanacatib, cholesterol drug 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 cervical and other sexually transmitted cancers caused by human papilloma virus.

Frazier is sure to note that earlier this month the company decided to end a late-stage clinical trial of odanacatib because there was clear evidence that it reduced the risk of bone fractures in post-menopausal women with osteoporosis.

Merck's research program hit one big bump in June, though, when the Food and Drug Administration refused to approve ridaforolimus unless Merck conducts further testing. The drug is meant to suppress sarcoma — a group of rare cancers occurring outside the body's organs —in the bones and tissue of patients whose cancer is in remission. Analysts likely will ask Merck what its next move will be for the drug.

Analysts also may ask about the status of anacetrapib, a cholesterol drug in late-stage testing in the class called CETP inhibitors. That's because rival Roche Group had a drug in the same category, dalcetrapib, that failed in testing. A similar drug Pfizer Inc. was developing, torcetrapib, was scrapped five years ago due to safety problems. The class of drugs was seen as promising replacements to cholesterol blockbusters such as Lipitor and Zocor that now have generic competition.

Analysts may ask for updates on an Alzheimer's disease drug, MK-8931, in early patient testing. Interest in that field jumped after Pfizer Inc. said Monday that an Alzheimer's drug it's developing with Johnson & Johnson failed in one of four late-stage patient studies, although the other studies will continue.

Merck executives likely will discuss early sales trends for some recently approved drugs. Those are glaucoma treatment Zioptan, hepatitis C drug Victrelis and Janumet XR, an extended-release version of the combination Type 2 diabetes pill that's part of it blockbuster diabetes drug franchise.

Executives may also talk about an expected rebound in sales of Merck's shingles vaccines Zostavax. The company has finally resolved a five-year struggle over manufacturing problems and recently resumed running consumer ads for the shot. It prevents a painful condition caused by the chickenpox virus that many people have harbored since childhood.

CEO Frazier could mention a June deal with biotechnology company Ambrx Inc. to develop drugs using its delivery technology.

WHY IT MATTERS: On Aug. 3, Singulair's patent expires. Multiple generic versions of the asthma and allergy remedy will hit drugstores right away, and that will quickly reduce Singulair sales. Last year Singulair was the 11th-best-selling drug in the world with $5.5 billion in sales, more than 10 percent of Merck's $48 billion in total revenue.

Merck, based in Whitehouse Station, N.J., is hoping to overcome that financial hit with a combination of ongoing jobs and cost cuts, expanding sales in other countries, growing its animal health and consumer healthcare businesses and launches of new products as they get approved over the next couple years.

WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.01 and sales of $12.15 billion.

LAST YEAR'S QUARTER: Merck reported profit of $2.02 billion, or 65 cents per share, on revenue of $12.15 billion.

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

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