TRENTON, N.J. — Pharmaceutical companies Schering-Plough Corp. and Merck & Co. posted strong sales Monday from their joint venture on cholesterol drugs, but otherwise their third-quarter earnings reports - and investor reaction - were strikingly different.
Whitehouse Station-based Merck surpassed analysts' expectations and saw its shares rise as much as 3 percent, while cross-state partner Schering-Plough fell shy of what Wall Street anticipated, and its shares plunged more than 13 percent.
Merck posted a 63 percent increase in its third-quarter profit, as revenue jumped 12 percent, and it increased its fullyear earnings forecast.
It reported net income of $1.53 billion, or 70 cents per share, for the July-September period, up from $940.6 million, or 43 cents per share, a year earlier. Revenue totaled $6.07 billion.
Excluding one-time items, net income would have been 75 cents per share - 6 cents above the consensus forecast ofanalysts surveyed by Thomson Financial.
Its shares rose $1.53, or 2.9 percent, to $54.64 Monday, near their 52-week high of $55.14.
Schering-Plough's profits more than doubled, but without one-time gains it missed Wall Street expectations.
The Kenilworth-based company said net income rose to $713 million, or 45 cents per share, from $287 million, or 19 cents per share, a year ago. Revenue climbed 9 percent to $2.81 billion.
Excluding $294 million of acquisition-related gains and a $20 million research payment, the company would have earned 28 cents per share, 2 cents less than the analyst consensus.
"This is a tale of two different expectations," said analyst Steve Brozak of WBB Securities.
Investors have expected less of Merck in the three years since it pulled its blockbuster painkiller Vioxx off the market, triggering a slew of lawsuitsover cardiovascular damage, and Merck carefully manages to slightly exceed expectations and raise its forecast minimally most quarters, he said.
"Schering's numbers are up, but they didn't hit the mark," Brozak said, despite executives touting the company recently to pitch $2 billion worth of senior notes to help fund its $15 billion acquisition of Organon Bio-Sciences. He said that caused a backlash against Schering-Plough shares.
"This is starting to become the worst of times," with no improvement likely until the pharmaceutical industry restructures and improves its pipeline, Brozak added.
Schering-Plough officials said that with the Organon deal expected to close by year's end and some potential blockbuster drugs close to approval, expenses are expected to keep growing along with revenue.
Fred Hassan, Schering-Plough's chief executive, said those drugs should sell even more in the future because medical guidelines for cholesterol targets keep getting lowered.
Analyst James Kelly of Goldman Sachs wrote in a research note that Schering-Plough came in below what he expected on several key numbers, from expenses and tax rate on the positive side to revenue for a range of products, including respiratory medicines Clarinex and Nasonex, and even Zetia and Vytorin. Schering-Plough has been a Goldman Sachs client.
Its shares fell $4.37, or 13.4 percent, to $28.34; the stock has traded between $21.15 and $33.81 in the past year.
Merck raised its 2007 earnings forecast to a range of $3.08 to $3.14 per share, excluding 21 cents worth of charges for its ongoing restructuring program, from an earlier projection of $3 to $3.10 per share. Analysts wereexpecting $3.07.
However, it added $70 million to its reserves for defending Vioxx lawsuits. As of Sept. 30, Merck had reserved $1.92 billion for legal expenses and spent $1.2 billion.
It said it currently faces about 26,600 lawsuits representing 47,000 plaintiffs, and about265 potential class-action cases, including one seeking medical tests for Vioxx users who may have suffered a "silent heart attack." In product liability trials that have reached verdicts, Merck has won 10 cases and lost five.
Its sales were led by Singulair for asthma and allergies, at $1 billion; osteoporosis treatment Fosamax, with $725 million in sales; blood pressure medicines Cozaar and Hyzaar, at $814 million; and several vaccines with combined sales of $1.2 billion.
Gardasil, Merck's vaccine to prevent cervical cancer, had sales of $418 million - and a total of $1.14 billion for the first nine months - leading new Chief Financial Officer Peter Kellogg to call it a blockbuster, a rare status for a vaccine.
"We see Merck shares poised for further upside based on continued sales momentum, particularly as Gardasil and [diabetes drug] Januvia become more significant contributors," Chris Schott, an analyst at Banc of America Securities, wrote in a research report. Merck has been a client of his company.
Business, Pages 23, 24 on 10/23/2007