Street divided over numbers from Big Pharma

Schering surges 8 percent but Wyeth dips despite beating forecasts; Merck results match recently raised guidance.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The drugmakers Merck, Schering-Plough and Wyeth all reported strong first-quarter earnings - with Schering and Wyeth trouncing forecasts - but investor reaction was mixed.

Schering stock surged 8 percent following the company's announcement that first-quarter earnings surged 55 percent.

Merck stock was flat after the company matched its own expectations of a 12 percent profit jump.

Wyeth's stock dipped 2 percent in early trading but then partly recovered, after reporting a better-than-expected 12 percent rise in earnings.

Merck (up $0.86 to $51.01, Charts, Fortune 500), which matched its own recently-raised guidance, and Schering (down $0.22 to $30.78, Charts, Fortune 500), partners in the drugs Vytorin and Zetia, praised this cholesterol-cutting franchise for driving sales.

Merck also said rapidly growing sales for its cervical cancer vaccine Gardasil, launched in 2006, contributed to its strong performance. Wyeth (down $0.09 to $55.57, Charts, Fortune 500) also lauded a vaccine, the anti-infective Prevnar, with driving company sales, though sales for other products were weak.

Merck chief executive Richard Clark hinted that an acquisition could be on the horizon. The CEO said, in a call with analysts, that his company was continuing to troll the market for "a range of targeted acquisitions that meet the company's needs," though he didn't name names.

Big Pharma in recent years has been dealing with a double-edged sword: patents have run out on profitable blockbuster drugs, and anemic pipelines have failed to promise new ones. But reports from Merck, Schering and Wyeth demonstrate that the industry could be pulling out of its slump. The companies said they owed their strong performance to fast-growing new products.

Merck chief financial officer Judy Lewent (who is soon to leave the company) said the vaccine franchise was a "major contributor to our top line growth," particularly Gardasil, for the prevention of cervical cancer, which had a "major impact in the first quarter." Gardasil was launched in June, 2006 and sales totaled $365 million in the first quarter. Analysts see Gardasil as a potential multi-billion dollar blockbuster.

Merck and Schering also lauded their cholesterol drug partnership as a key driver for sales. The companies reported that sales from Vytorin and Zetia totaled nearly $1.2 billion, a 48 percent increase from the first quarter in 2006.

Wyeth also owes its strong quarter to a vaccine franchise. The company reported that sales for Prevnar, a vaccine for the prevention of pneumonia and meningitis in children, soared 43 percent to $617 million.

Not all the news was rosy. Merck CEO Clark said he was "disappointed" that Food and Drug Administration advisors on April 13 overwhelmingly voted against the arthritis painkiller Arcoxia. This nonbinding vote will be taken as advice by FDA regulators when they decide on April 27 whether or not to approve the drug.

Arcoxia is already available in 63 countries and sales totaled $80 million in the first quarter, a 35 percent from the year-ago quarter. Arcoxia is a member of the same drug class as Vioxx, another anti-arthritis painkiller that Merck pulled off the market in 2004 after a study linked it to heightened risk of heart attack and stroke.

The loss of Vioxx evaporated $2.5 billion in annual sales and resulted in about 28,000 lawsuits from former patients and their families. So far, Merck has won 10 cases in court and lost five.

Merck recently raised its guidance to a range of $2.75 to $2.85 earnings per share for 2007, excluding charges related to downsizing. Chris Schott, analyst for Bank of America Securities, said in a published note that Merck's guidance is "conservative" given the "improved ability to absorb significant patent expirations" by Merck and other drug companies.

But Joseph Tooley, analyst for A.G. Edwards, isn't so bullish. Tooley rates Merck a "hold" and said, in a published note, that the company's strong quarter is "somewhat diminished by the ongoing overhang of the Vioxx litigation and consistent patent expirations."

Schott does not own shares of Merck, but Bank of America has led or co-managed an offering of securities for the company in the past 12 months.

(Correction: An earlier version of this story inaccurately stated that Arcoxia and Vioxx contain the same active compound.) Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.