Shares of Merck & Co. and Schering-Plough Corp. jumped Monday as both reported higher sales and much-improved earnings compared with a year earlier, when they had hefty charges and Schering posted a loss.
The pharmaceutical companies, struggling with slumping sales and profits and other problems for a couple of years, each beat analysts' forecasts by a whopping 8 cents a share, and Merck significantly raised its profit forecast for the year.
Both benefited from higher sales of key medicines, particularly the cholesterol drugs they jointly developed and sell, Vytorin and Zetia. Each company saw its shares jump at least 4% on Monday, with trading volume double the normal level or higher.
Shares of Kenilworth, N.J.-based Schering-Plough rose $1.10, or 5.7%, to close at $20.55. Over the last year, the shares have traded between $17.88 and $22.53.
Merck shares rose $1.59, or 4.3%, to $38.95, topping its 52-week high by $1.32. Merck is based in Whitehouse Station, N.J.
"This was a questionable patient a year ago and now they're significantly better," pharmaceuticals analyst Steve Brozak of WBB Securities said of Merck.
Merck, Schering-Plough and other drug makers all benefited in the second quarter from "tail wind" because of new prescription drug coverage for seniors under Medicare, analyst Dr. Timothy Anderson of Prudential Financial wrote in research reports.
Lower costs clearly helped boost results as well.
Merck's year-ago results were depressed by a $640-million tax charge for transferring foreign earnings to the United States. In this year's second quarter, it reduced marketing and administrative spending a bit. It also posted interest income rather than expense.
Schering-Plough, best known for its Nasonex spray and Clarinex pills for allergies, had one-time charges totaling $259 million in 2005's second quarter.
In the latest quarter, Merck, the maker of the osteoporosis treatment Fosamax and asthma and allergy drug Singulair, reported net income of $1.5 billion, or 69 cents a share. That was up from $720.6 million, or 33 cents, a year earlier. Revenue totaled $5.77 billion, up 5.6% from $5.47 billion.
Excluding a net charge of $161 million for its ongoing global restructuring, income would have been 73 cents a share, 8 cents more than analysts had expected.
"We believe that the market continues to underestimate the potential of [Merck's] new products, while overestimating the company's ultimate Vioxx legal liability," Morgan Stanley analyst Jami Rubin wrote.
Merck has won four of seven verdicts to date in trials over the withdrawn painkiller. It reported that as of June 30 it had been served with 14,200 Vioxx lawsuits that include about 27,100 plaintiff groups, plus 190 potential class-action suits; court officials report a total of more than 16,000 suits alleging the arthritis pill caused heart attacks or strokes.
Schering-Plough's net income was $237 million, or 16 cents a share, compared with a loss of $70 million, or 5 cents, in 2005's second quarter, when charges cut earnings by 18 cents a share. Sales rose 11% to $2.82 billion from $2.53 billion a year earlier.
Excluding charges related to the restructuring of manufacturing operations, Schering-Plough would have posted a profit of $375 million, or 25 cents a share, in the latest quarter -- 8 cents above Wall Street expectations.