Merck's Januvia, animal health products slump; shares off


By Ransdell Pierson

Oct 28 (Reuters) - Merck & Co Inc reported lowersales of its Januvia diabetes treatment, fresh evidence itsbiggest product is losing ground to newer drugs, and alsospooked investors with falling quarterly sales of its animalhealth products.

The company's shares dropped 2.6 percent, or $1.19, to$45.33 in afternoon trading.

Merck's animal health brands, which typically prop upresults, suffered a 2 percent sales decline in third quarter,hurt by the recent decision to suspend marketing of its Zilmaxweight-gain feed supplement amid concerns it was causinglameness in cattle.

"The fundamentals of the business remain solid despite whatwe saw in the quarter," Chief Executive Ken Frazier toldanalysts on a conference call, referring to the animal healthunit.

Global sales of Januvia fell 5 percent in the quarter to$927 million. Combined sales of the pill and a related drugcalled Janumet fell 1 percent to $1.4 billion, versus 5 percentgrowth in the prior quarter, and marked a return to declines inthe first quarter.

"It looks like Januvia might be plateauing," saidMorningstar analyst Damien Conover, adding the trend couldcontinue to put pressure on Merck's profits as it strives todevelop new medicines.

ISI Group analyst Mark Schoenebaum said combined U.S. salesof Januvia and Janumet were $91 million short of Wall Streetestimates, and may force Merck to back off its earlierprediction that the Januvia franchise will grow by the"mid-single-digit" percentage range this year in the UnitedStates.

Januvia sales have grown by leaps and bounds since the drugwas approved in 2006 - the first member of a new class of oraldiabetes treatment called DPP4 inhibitors.

But three similar drugs have been introduced since then andare taking market share from Januvia, including Bristol-MyersCo's Onglyza, and Tradjenta from privately heldBoehringer Ingelheim and Eli Lilly and Co.

Merck said the falling number of Januvia prescriptions inthe quarter was a surprise and cause for concern.

"If the volumes continue to decline, definitely it will be aproblem for us," Adam Schechter, head of global human health atMerck, said on the conference call.

Merck shares have risen 11 percent this year, only half thegains seen for the ARCA Pharmaceutical Index of largeU.S. and European drugmakers, on worries about Januvia andfailures or regulatory setbacks for a handful of its mostimportant experimental drugs. Its shares have also been heldback by plunging sales of its former top product, Singulair forasthma, which began facing cheaper generics last year.

In the meantime, rivals like Pfizer Inc and Johnson& Johnson have launched a crop of new medicines and havehigh hopes for others in clinical trials.

Faced with Januvia's stall and setbacks for its drugpipeline, Merck said early this month it will cut annualoperating costs by $2.5 billion and eliminate 8,500 jobs, ormore than 10 percent of its global workforce.

Like other drugmakers that have slashed costs in the pastthree years, most notably Pfizer, Merck said it will narrow itsfocus to products with the best chance of winning regulatoryapproval and achieving substantial sales. That means it willscrap some drugs already in late-stage trials, while licensingproducts from other drugmakers.

The company earned $1.12 billion, or 38 cents per share, inthe third quarter, compared with $1.73 billion, or 56 cents pershare, in the year-earlier period.

Excluding special items, Merck earned 92 cents per share.Analysts, on average, expected 88 cents per share, according toThomson Reuters I/B/E/S.

Merck said the better-than-expected earnings was largely dueto efforts to manage costs across the board. Research anddevelopment spending was lower in part because costly late-stagetrials of some medicines had been delayed until the fourthquarter.

Company sales fell 4 percent to $11.03 billion, below WallStreet estimates of $11.12 billion. They would have fallen 2percent if not for the stronger dollar, which lowers the valueof sales in overseas markets.

Merck's Gardasil vaccine to prevent cervical cancer was abright spot in the quarter, with sales rising 15 percent to $665million, helped by additional sales to government healthcareproviders. And sales of Remicade, used to treat rheumatoidarthritis, rose 12 percent to $574 million.

Merck expects full-year earnings of $3.48 to $3.52 pershare, excluding special items. Early this month, it forecast$3.45 to $3.55 per share.

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