Merck KGaA Triples Q4 Profits But Outlook Remains Cautious

German pharma and chemicals group Merck KGaA today announced 11% growth in reported revenues in 2011 to EUR10.3 billion (USD13.6 billion) after fourth-quarter revenues inched up 3% to EUR2.6 billion. Reported revenues gained a one-time increase as a result of the acquisition of Millipore, which closed in July 2010. Although net profits nearly trebled in the fourth quarter to EUR135 million, this was primarily down to the write-off of Parkinson's candidate safinamide last year. Full-year profits declined 2% year-on-year (y/y) to EUR617 million. Research and development (R&D) costs increased 8.6% in 2011, primarily due to ongoing late-stage trials in Merck Serono's pipeline. Merck's results are available here.

Europe still accounted for the vast majority of sales (46%) but declined 3.3% due to the divestment of the Theramex women's health business in 2010 as well as ongoing austerity measures in the European markets. Latin America and Asia grew 11% and 16% respectively, primarily due to strong growth in its pharmaceutical portfolio.

Revenues from the pharmaceutical unit Merck Serono increased 2.9% to EUR5.9 billion, and if divestments and foreign currency effects are removed from the equation, total revenues grew 5.1%. Merck Serono's two global big-hitters, multiple sclerosis treatment Rebif (interferon beta 1a) and cancer drug Erbitux (cetuximab) both grew incrementally by 3.4–3.5% to EUR1.7 billion and EUR855 million respectively. Merck Serono's operating result declined 46% to EUR304 million due to the one-time write-down,s with the underlying EBIT margin halving from 2010 to 5.6%. Sales at the newly integrated biomanufacturing division Merck Millipore grew 48% to EUR2.4 billion, primarily since 2010 only included Millipore for six months; underlying revenues grew 4.3%. 2011 sales saw 7.2% growth in North America, 8.7% growth in Latin America and 5.1% growth in Asia.

Outlook and Implications

Like its German compatriots Bayer, Merck has issued a cautious outlook, with revenues and EBITDA for both the Group and the pharmaceuticals division expected to "increase slightly" in 2012 and 2013. However, several one-time expenses related to cost reductions may mean that reported EBITDA could decline. The majority of these costs are expected in 2012.

Merck's pipeline remains in a state of flux following the withdrawal of regulatory submissions for cladribine in the United States and Europe as well as the return of licensing rights for safinamide to Newron last year. Still, Merck is aiming for an important extension of Erbitux's indications to a first-line setting in lung cancer in Europe, following on from the new indication of Rebif for patients with early signs of multiple sclerosis. Among the company's most promising new compounds, Merck's Phase III candidates include Kuvan (sapropterin) for PKU, integrin inhibitor cilengitide for brain tumours; at Phase II level we expect results for atacicept in systemic lupus erythematosus (SLE) and DI17E6 in prostate cancer in 2012.