Merck: No Pill for A Sickly Performance

Merck missed revenue estimates but beats on bottom line. Generic drugs and patent expiries leading to Year-over-Year declines in revenues. Growth in vaccine, immunology and HIV business sales partially offset the decline from other segments

Merck and Co., Inc. (MRK), one of the largest pharmaceutical companies in the world, seems to be a little under the weather. In its earnings announcement for the third quarter of fiscal year 2013 (3QFY13), it reported a 4% drop in revenues from the comparable year-ago quarter. In the three months, it recorded revenues of $11.03 billion, which were lower than analyst estimates of $11.13 billion for the quarter. Its non-GAAP (Generally Accepted Accounting Principles) earnings also fell 3.2% year-over-year to 92 cents per share, but were better than analyst expectations of 88 cents.

Gross margins for the period fell 1.2 percentage points to 62.8% due to acquisition-related expenses and restructuring costs.

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Merck Looking to Revamp R&D Unit

Merck (MRK), the second-largest drug maker in the US based on sales, has decided to revamp its R&D unit after multiple setbacks. The company is planning to tap into research and innovation from outside its own labs and will be setting up these new centers near Boston, the San Francisco Bay area, London, and Shanghai.

Merck has failed to release a blockbuster drug in years. The last successful drugs that Merck received approval for were Januvia, a diabetes drug, and Gardasil, a vaccine for cervical cancer. This was back in 2006. On top of its stagnant drug pipeline, upcoming patent expiries of top-selling drugs like Singulair, a treatment for allergy and asthma, point towards a bleak future for the company.

To try and kick-start its stalled R&D , the drug maker is following in the footsteps of its competitors Pfizer (PFE), Johnson & Johnson (JNJ), and GlaxoSmithKline (GSK), which are already setting up innovation centers and satellite labs in a number of areas. This approach gives these companies access to research being conducted in different areas and allows them to gain a head-start on the competition.

Read More : MRK - JNJ