Second quarter results at Merck, the German pharmaceutical group, were impacted by competition from generic versions of its top-selling product, the anti-diabetes drug Glucophage. But Merck, which earlier this month extended its vitamin business with an acquisition in France, remains confident of an upturn in fortunes.
Sales in the three month period fell by 3.4 per cent to €1.9 billion from €1.95 billion a year earlier, but this decline masked a good 3 per cent increase in organic sales. However, negative currency effects, mainly due to the weakness of the US dollar, reduced revenues by 5.2 per cent during the quarter.
Consequently, the operating result fell 44 per cent to €142 million from €254 million in the second quarter of last year, the second-best quarter in Merck's history. Profit after tax declined 41 per cent to €62 million from €104 million, while net profit fell 40 per cent to €60 million from €99 million.
"The record results last year, of course, skews the percentages this year. In addition, negative currency effects of more than 5 per cent resulted in a sales decline," said Merck CEO Bernhard Scheuble. "Still, there is no denying the effect of generic metformin on our Glucophage sales. However, the Glucophage franchise still maintains nearly 50 per cent of total metformin prescriptions in the US and we are confident that we are mastering this challenge."
Scheuble said that the future still looked rosy for Merck, not least because it had 17 drug candidates in Phase II and III of clinical development, "one of the fullest pipelines for a drug company of its size".
In order to compensate as much as possible for the reduction in earnings, Merck has implemented significant cost-saving measures, including restructuring efforts as well as reductions in staff numbers and investments. The restructuring of Merck's global pharmaceutical production network is expected to result in annual savings of more than €50 million.
Merck intends to reduce its global headcount by more than 1 per cent by the end of this year, but without introducing a general lay-off programme. Investments already have been reduced by €70 million during the first half of 2002. Merck cut back on research and development spending by 11 per cent in the second quarter but remains committed to investing in important strategic projects such as its pharmaceutical pipeline.
Scheuble said that the company expected to see single-digit growth in sales for the year as a whole and an operating result as much as one-third below that of last year.