Merck Beats 1Q Profit Views with Tight Cost Controls

Merck posted an 18 percent jump in first-quarter income, beating Wall Street expectations, as reduced spending on marketing, administration and research easily offset lower sales of its medicines outside the U.S.

The second-biggest U.S. drugmaker on Thursday nudged up its 2016 financial forecasts and its shares edged up in premarket trading.

Merck reported first-quarter earnings of $1.13 billion, or 40 cents per share, up from $953 million, or 33 cents per share, in 2015’s first quarter.

The Kenilworth, New Jersey-based company said adjusted earnings, excluding asset write-downs and restructuring costs, amounted to 89 cents per share, four cents more than analysts surveyed by Zacks Investment Research had expected.

The maker of Type 2 diabetes pill Januvia and cholesterol drugs Zetia and Vytorin is launching a new cycle of medicines as revenue from some older drugs declines, hurt by brand-name or generic competition.

Merck posted revenue of $9.31 billion in the quarter, just missing Street forecasts for $9.49 billion. While U.S. sales climbed 7 percent to $4.22 billion, sales oversees fell 7 percent to $5.09 billion.

Merck said revenue was reduced by 4 percent by the strong dollar, which reduces the value of medicines bought in local currencies. That’s a smaller hit than seen in recent quarters.

Merck raised its 2016 profit forecast slightly to a range of $3.65 to $3.77 per share, up from its February forecast of $3.60 to $3.75 per share. It expects revenue of $39 billion to $40.2 billion, up from its prior forecast of $38.7 billion to $40.2 billion.

“The Global Human Health business performed well in the first quarter. The Januvia franchise demonstrated strong growth, and we remain pleased with the ongoing launch of Keytruda in markets around the world,” Adam Schechter, the division’s president, said in a statement. “Additionally, we are already seeing positive signs in the launch of Zepatier in the United States.”

Sales of prescription medicines dipped 2 percent, to $8.1billion. Januvia and combo pill Janumet posted combined sales of $1.41 billion, while sales of Keytruda, one of the hot new cancer drugs that work by stimulating the immune system to better fight cancer cells, nearly tripled to $249 million. Zepatier, approved at the end of January for treating hepatitis C, posted initial sales of $50 million.

Merck noted a generic version of allergy spray Nasonex hit U.S. drug stores in March, and antibitoic Cubicin will get U.S. generic competition in June. Cheaper copycat versions of those drugs will begin cutting into sales of both, and some of its biggest sellers are approaching the end of their patent protection.

“Business development is a top priority, and we are actively pursuing the best external science through licensing or (small and mid-sized) acquisitions to bolster our pipeline and grow our company,” CEO Kenneth Frazier said in a statement.

Sales of veterinary medicines, such as chewable Bravecto tablets for killing fleas and ticks on drugs, were flat at $829 million.

In premarket trading, Merck shares edged up 14 cents to $54.95.

Its shares have increased nearly 4 percent since the beginning of the year, while the Standard & Poor’s 500 index has stayed nearly flat.