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Merck KGaA Declines to Four-Month Low as Profit Declines

May 15, 2012

Merck KGaA (MRK) fell to the lowest price in more than two months after the German maker of the Erbitux cancer drug reported a decline in first-quarter profit and forecast cost savings short of analysts’ estimates.

Net income decreased 49 percent to 174.2 million euros ($223 million) from 341.1 million euros a year earlier, Darmstadt-based Merck said today in a statement. Core earnings, excluding costs such as writedowns and merger expenses, were 1.67 euros a share, missing the 1.75-euro average estimate of 10 analysts surveyed by Bloomberg. The stock fell 2.8 percent.

Merck forecast net savings of 300 million euros by 2014 as it cuts jobs to streamline its drugmaking operation following developmental and regulatory setbacks. The market may be disappointed about the target, Richard Vosser, an analyst at JPMorgan Chase & Co., wrote in a note to investors.

“We struggle to build a compelling investment thesis around a mature pharma business with limited pipeline punch and declining royalty income,” Edward J. Dulac III, an analyst at Barclays Capital in London, wrote in a note. He has an underweight recommendation on the stock.

Job-Cut Plan

Merck said April 24 that it will close the Geneva headquarters of its Serono division and transfer 750 employees to other locations to cut costs and eliminate redundancies in production. The plan includes cutting 500 jobs in Geneva as well as 80 positions across three manufacturing sites in Switzerland. The company bought Serono, Europe’s biggest biotechnology company, for $13.3 billion in 2007.

Merck shares fell in Frankfurt to 76.41 euros, the lowest price since March 7.

Merck, which isn’t related to U.S. drugmaker Merck & Co. (MRK:US), stuck to a forecast that spending on job cuts will cause a decline in earnings before interest, tax, depreciation and amortization this year. It’s predicting Ebitda excluding items of 2.8 billion euros to 2.9 billion euros and revenue of 10.5 billion euros. The forecasts are in line with analysts’ estimates compiled by Bloomberg.

For 2014, Merck forecast adjusted earnings per share of 8.20 euros to 9 euros, earnings before interest, tax, depreciation and amortization of 3 billion euros to 3.2 billion euros and sales of 10.35 billion euros to 10.7 billion euros.

Drug Setbacks

Merck’s Rebif multiple sclerosis infusion treatment, the company’s top-selling product, faces increased competition from newer therapies. In June, the drugmaker dropped development of a multiple sclerosis pill, cladribine, which had been its most promising experimental medicine.

The company said on May 9 that its Erbitux drug failed to show a benefit for stage-three colon cancer patients when given with chemotherapy as a way to prevent the cancer’s return following tumor removal, compared with chemotherapy alone.

Serono’s first-quarter sales climbed 5.4 percent to 1.42 billion euros. Rebif revenue rose 4.5 percent to 430 million euros, while Erbitux had sales of 214 million euros.

Consumer-health product sales declined 7.4 percent to 108 million euros. Sales at Performance Materials, which includes revenue from liquid crystals used in TV screens, fell 5.3 percent to 386 million euros.

Merck’s Millipore unit makes products including water purification systems used in drug research. Merck is also the world’s biggest maker of liquid crystals, which are used in flat screen televisions and electronic device displays.

Chief Executive Officer Karl-Ludwig Kley told investors at the annual meeting on April 20 that he’ll focus on restructuring Merck over the next two years before making any major acquisitions.

To contact the reporter on this story: Allison Connolly in Frankfurt at

To contact the editor responsible for this story: Phil Serafino at

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Companies Mentioned

  • MRK
    (Merck & Co Inc)
    • $57.78 USD
    • 0.32
    • 0.55%
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