MRK Merck and Co Inc

By Peter Loftus and Austen Hufford 

Merck & Co. posted an unexpected increase in second-quarter revenue thanks to new cancer and hepatitis treatments, and an increased profit versus a year-earlier period that was weighed down by foreign-exchange losses.

The drugmaker also tightened its full-year 2016 financial forecast, which was mostly in-line with analyst forecasts.

Merck is trying to return to consistent sales growth after several years of declines, as older drugs have lost sales to generic competition. The company is aiming to replace the lost revenue with sales from new products such as the cancer immunotherapy Keytruda and hepatitis C treatment Zepatier, and has cut costs in an effort to bolster profits.

But some analysts see a tough road ahead for Merck. Keytruda faces a strong competitor in Bristol-Myers Squibb Co.'s Opdivo cancer immunotherapy, which has generated higher sales. And Merck faces sales declines in coming years for top drugs including cholesterol treatments Vytorin and Zetia, due to generic competition, said Credit Suisse analyst Vamil Divan.

For the quarter, the company posted a profit of $1.21 billion, up 75% from $687 million a year earlier, when Merck took a $715 million charge to devalue its assets in inflation-plagued Venezuela. Earnings rose to 43 cents a share from 24 cents a share.

Excluding restructuring and acquisition-related costs, per-share earnings rose to 93 cents from 86 cents. Analysts polled by Thomson Reuters had forecast per-share earnings of 91 cents a share on revenue of $9.78 billion.

Sales grew 0.6% to $9.84 billion.

Merck's pharmaceutical revenue increased 1.6% to $8.7 billion for the second quarter, driven by growth in cancer treatments, hospital acute care, cardiovascular treatments and vaccines.

Keytruda, which treats melanoma and lung cancer, posted sales of $314 million in the most recent quarter, compared with $110 million in the same quarter last year. Merck is continuing to develop and launch the drug for different types of cancers; its Keytruda development program includes 30 tumor types across more than 300 clinical trials.

Merck is trying to expand the use of Keytruda to include newly diagnosed lung-cancer patients -- a large market. Merck plans to release full details in the coming months of a study in which Keytruda prolonged survival in such patients, compared with chemotherapy.

"My sense is that these data are quite strong and potentially practice-changing in first-line lung cancer," Merck's head of research, Roger Perlmutter, said in an interview Friday.

In January, the U.S. Food and Drug Administration approved Merck's new treatment, Zepatier, for hepatitis C, the latest entrant in a booming market for drugs for the viral infection -- a market now dominated by Gilead Sciences Inc. Zepatier had sales of $112 million, compared with $50 million in the first quarter.

Much of Zepatier's sales so far have come from Merck's contract with the U.S. Department of Veterans Affairs' health-care division, Adam Schechter, head of Merck's pharmaceutical unit, said in an interview.

Sales of allergy treatment Nasonex fell 53% in the first quarter from the year prior. A generic version of the drug became available in the U.S. in March, and the company has said it expects significant losses in future sales.

Sales of Remicade, a treatment for inflammatory diseases, decreased 26% because of a loss of exclusivity and the accelerating impact of competition from lower-cost copies, known as biosimilars, primarily in Europe.

Combined sales of Type 2 diabetes treatments Januvia and Janumet increased 2%, while combined sales of cardiovascular drugs Zetia and Vytorin grew 4% on price increases.

Antibiotic Cubicin posted 22% sales growth to $357 million on price increases, but Merck said it had lost patent protection in June and that it expects a significant decline in sales.

HPV vaccines Gardasil and Gardasil 9 fell 8% to $393 million due to the timing of public sector purchases.

Earlier this month, Merck said it planned to lay off research-and-development workers at three East Coast sites in a shake-up of its early-stage drug-hunting efforts. At the same time, Merck plans to start new laboratories in Cambridge, Mass., and the San Francisco Bay Area, as part of a trend among large drugmakers to try to tap into hot clusters of biotechnology startup activity and academic research.

For the year, Merck now projects per-share adjusted earnings between $3.67 and $3.77 on revenue between $39.1 billion and $40.1 billion. Analysts had expected adjusted earnings of $3.72 a share on revenue of $39.49 billion.

Shares, which have risen 7% in the last three months, increased 0.5% in recent trading.

Write to Peter Loftus at peter.loftus@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

July 29, 2016 13:32 ET (17:32 GMT)

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