Generic Rivals Sharply Erode Merck’s Results

Merck reported on Monday that its third-quarter profit plunged 35 percent because of competition from generic drugs, lower sales of its top-selling medicine, and restructuring and acquisition charges.

The results still beat Wall Street's profit expectations, but the drug maker sharply lowered its forecast for the full year.

Generic competition continues to weigh on Merck's asthma and allergy pill, Singulair, cutting sales 53 percent, to $280 million. The drug brought in $5.5 billion each year until its patent expired in August 2012 and cheap copycat versions flooded the market.

Merck had previously weathered generic competition to its blockbusters, usually managing to keep total sales about the same level as before big patent expirations.

"This year, we were not able to do that," the company's chief executive, Kenneth C. Frazier, said on Monday.

Merck's net income was $1.12 billion, or 38 cents a share, down from $1.73 billion, or 56 cents a share, in the period a year earlier.

The company said earnings would have been $2.73 billion, or 92 cents a share, excluding charges of $1.2 billion for merger and integration costs and $967 million for restructuring costs. Analysts surveyed by FactSet were expecting 88 cents a share.

Revenue in the quarter totaled $11.03 billion, down 4 percent and below analysts' expectations for $11.13 billion.

Besides Singulair, Merck is being hurt by generic versions of a half-dozen other drugs, plus unfavorable currency exchange rates, and its newer medicines are not picking up all the slack. Merck said it now expects total 2013 sales to be down 5 percent to 6 percent from last year.

Its top seller, Type 2 diabetes pill Januvia, had been climbing steadily toward the $4 billion-a-year mark, but sales slipped 5 percent in the quarter.

"Big, ugly surprise in revenues," concluded Erik Gordon, an analyst and professor at the Ross School of Business at the University of Michigan. "It's a contrast to their sisters in Big Pharma, who have been coming close to hitting their projections."

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