Drugmaker Merck & Co. on Tuesday posted huge jumps in revenue and profit for the fourth quarter, mainly due to its purchase of longtime partner Schering-Plough Corp., and announced the first details of the combined company’s planned restructuring.
Merck reported net income of $6.49 billion, or $2.35 per share, up from $1.64 billion, or 78 cents a share, a year earlier. Along with the addition of a few billion dollars in sales from Schering-Plough products, the big gain was due to $7.8 billion worth of mostly merger-related accounting items.
Merck said the first phase of its restructuring program is expected to bring annual savings of $2.6 billion to $3 billion in 2012 — the bulk of its previously announced plan to produce $3.5 billion in savings by 2012, one of the key goals of the merger.
The combined company had about 100,000 employees as of Dec. 31 and expects companywide cuts to reduce that by about 15 percent. Another 2,500 jobs now vacant will also be eliminated. When the deal was announced last March, Merck said it planned to eliminate roughly 16,000 jobs, or about 1,500 fewer cuts than Tuesday’s total.
Sales jumped 67 percent to $10.09 billion from $6.03 billion in the fourth quarter of 2008, fueled by the addition of Schering-Plough products such as allergy medicine Nasonex and higher sales for Merck vaccines and some of its top-selling drugs. Those included asthma and allergy pill Singulair and blood pressure pills Cozaar and Hyzaar.
The Whitehouse Station, N.J., company reported earnings per share of $2.35, or 79 cents excluding all the one-time items. Analysts surveyed by Thomson Reuters were expecting earnings per share of 79 cents, which Merck matched, and slightly lower revenue of $9.7 billion.
In early trading Tuesday, Merck shares rose 75 cents, or 2 percent, to $37.67.
One-time costs and gains from the merger and related accounting maneuvers resulted in an after-tax boost of $4.3 billion, or $1.56 per share, to Merck’s net income. Without them, Merck would have ended up with a profit of $2.2 billion after taxes, equal to the 79 cents per share.
The major one-time items included gains of $7.5 billion from an accounting adjustment due to Merck getting a controlling interest in its partnership with Schering-Plough and $400 million from Merck selling its half of the Merial animal health business to Sanofi-Aventis SA to get regulators’ approval for the acquisition. Those were partly offset by charges of $1.5 billion for restructuring costs, $288 million for merger-related costs and $2.29 billion in accounting adjustments for the intangible value of Schering-Plough assets.
“There are a lot of moving parts,” Chief Financial Officer Peter Kellogg said after reviewing the detailed charges during a conference call with analysts.
He said Merck still expects to produce high-single-digit growth in earnings per share, excluding one-time items, each year through 2013, but will not give a detailed financial forecast for 2010 until April. The company expects stronger results in the second half of this year than the first half, partly because it will get hit within weeks with generic competition for Cozaar and Hyzaar, plus brain cancer drug Temodar, slashing their sales.
The report is the first since Merck bought Schering-Plough in November for $41.1 billion, making the combined operation the world’s second-biggest pharmaceutical company, behind Pfizer Inc.
“The new Merck is off to an excellent start,” said Chief Executive Richard T. Clark. “These results were achieved amid an uncertain global economy,” the debate over a U.S. health care overhaul and the start of integration of the two companies.
Clark said the company’s expanded product portfolio now includes 10 brands with annual sales of more than $1 billion. He noted Merck now is launching a number of new products in major markets around the world and plans more later this year.
For the full year, Merck reported net income of $12.9 billion, or $5.65 per share. That was up 65 percent from $7.81 billion, or $3.63 per share. Revenue climbed 15 percent to $27.43 billion from $23.85 billion.
(This version CORRECTS the amount of the gain on animal health sale to $400 million. )
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