Merck Scores a Hit With Keytruda, Watches Spending in 4Q

Merck & Co.’s new cancer medicine Keytruda, a blockbuster nearly overnight, along with aggressive and ongoing cost cuts, helped to boost fourth-quarter profit by 21 percent.

With sales surging for Keytruda and a second newcomer, Zepatier for hepatitis C, the country’s second-biggest drugmaker offset the impact of its latest round of generic competition for longtime big sellers, particularly cholesterol pill Zetia and allergy spray Nasonex.

Keytruda is part of the new generation of immuno-oncology drugs, cancer medicines that work by stimulating the immune system to fight tumors. Launched in September 2014 for advanced melanoma, Keytruda has already surpassed annual sales of $1 billion and has since been approved as an initial treatment for lung cancer.

Keytruda, which currently has the lead in the increasingly competitive immuno-oncology field, could get U.S. approval in March for two other tumor types.

Zepatier, launched early last year in the crowded field of new drugs that cure hepatitis C in just a couple of months, hit $229 million in fourth-quarter sales, putting it on pace to possibly hit $1 billion in sales this year.

Generics and newer, branded drugs continue to press Merck, however, and quarterly sales dipped 1 percent to $10.12 billion, just shy of Wall Street forecasts for $10.2 billion.

In the quarter, sales hit $483 million for Keytruda, while top sellers Januvia and Janumet for Type 2 diabetes had combined sales of $1.5 billion. Merck’s veterinary medicines brought in $884 million, up 6 percent, mainly on rising sales of pet medicines such as Bravecto flea-and-tick killer.

Fourth-quarter net income was $1.18 billion, or 42 cents per share. Adjusted for costs related to mergers, acquisitions and other non-recurring costs, per-share earnings were 89 cents per share, a penny better than industry analysts had projected.

The Kenilworth, New Jersey, company expects full-year earnings in the range of $3.72 to $3.87 per share, with revenue in the range of $38.6 billion to $40.1 billion. Analysts surveyed by FactSet were expecting $3.83 per share and sales of $40.13 billion, on average.

For all of 2016, Merck reported net income of $5.7 billion, or $2.04 per share, on revenue of $39.8 billion.

BernsteinResearch analyst Dr. Tim Anderson wrote to investors that Merck’s 2017 revenue and earnings-per-share forecasts were “decent,” calling that “a relief,” given Merck’s prior cautionary language and what its rivals have been predicting for 2017. Anderson noted that Merck remains one of his top three picks in the industry.

Merck shares have climbed 22 percent in the last 12 months.

In trading early Thursday afternoon, Merck shares were up $1.90, or 3.1 percent, to $64.