Merck & Co. Inc. (MRK) and Ariad Pharmaceuticals Inc. (ARIA) recently announced that the European Medicines Agency (EMA) has completed the validation process and accepted their marketing authorization application (MAA) for ridaforolimus for review. The companies are looking to get ridaforolimus approved as a treatment for metastatic soft-tissue or bone sarcomas in patients who responded favorably to chemotherapy.
Merck and Ariad Pharma have also filed a new drug application (NDA) for ridaforolimus with the US Food and Drug Administration (FDA).
Merck and Ariad Pharma have a licensing agreement for ridaforolimus. According to the agreement, Merck is responsible for the development and worldwide commercialization of ridaforolimus, while Ariad Pharma will co-promote ridaforolimus in the US.
We view the EMA’s acceptance of the MAA for ridaforolimus as a positive for Merck, which is currently facing headwinds in the form of patent expirations of key drugs, EU pricing pressure, US health care reform, and pipeline setbacks.
Last month, Merck reported its results for the second quarter of 2011. Earnings per share (excluding special items) for the quarter came in at 95 cents, in line with the Zacks Consensus Estimate but 10.5% above the year-ago earnings. Double-digit growth of key products and new product launches contributed to earnings growth.
Revenues for the quarter increased 7% to $12.2 billion, above the Zacks Consensus Estimate of $11.8 billion. While revenues were favorably impacted by foreign exchange fluctuations (4%), products like Januvia, Janumet, Singulair, Isentress, Gardasil, Zostavax and Remicade contributed strongly to sales.
Further, with the release of second quarter results, Merck updated some components of its guidance. While the company maintained its revenue guidance, it forecasts adjusted earnings in the range of $3.68 – $3.76 for 2011 (previous guidance: $3.66 – $3.76).
Merck expects 2011 revenue to grow in the low to mid single-digit percentage range year over year.
We note that the company continues to work on reducing its cost structure and has announced the next phase of its merger restructuring program. Merck intends to reduce its workforce by another 12-13% by the end of 2015. It however, plans to hire new employees for strategic areas like emerging markets.
Merck expects to achieve annual savings of $4.0 billion – $4.6 billion from its restructuring program instead of the original target of $2.7 billion – $3.1 billion. The company remains on track to achieving $3.5 billion per annum in cost synergies by the end of 2012.
We currently have a Neutral recommendation on Merck. The stock carries a Zacks #3 Rank (Hold rating) in the short-run.
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