Merck and Schering-Plough make their targets

More

So Merck and Schering-Plough are out today with some news that really gets attention these days: they beat their earnings forecasts. So, what on Earth could that mean?

Well, for one thing, both these companies (like nearly everyone else in the drug business) have been cutting costs like mad for the past year or so (for which read, mostly, shedding staff and closing facilities). And that seems to have worked, insofar as you can trust the numbers, or anyone's numbers. But there's only so far that that can take you: eventually, that slicing blade hits some vital tissue. You can't go on shutting things down and laying off people year after year, obviously. So while both companies did a good job of hitting their numbers this time, it's worth noting that they did so in spite of sales figures that weren't as good as either of them had been hoping for. So how much of this is due to one-time cost savings, and how big a worry are those sales?

Both companies have some things to worry about: Merck's Gardasil vaccine for cervical cancer has been big, but not quite as big as they'd been planning for. Singulair (for asthma) seems to have plateaued. And Merck has patent-protection problems - they lost Fosamax (for osteoporosis) last year, and Cozaar (cardiovascular) goes off patent in another two years. Schering doesn't have anything looming, but both they and Merck both have the well-publicized troubles with their Vytorin cholesterol medication to deal with. And that's a bigger percentage of S-P's sales, so it's hurt their stock correspondingly more.

Of course, both of them have interesting things coming along in their drug pipelines, too. So that takes us right back to the usual model of drug company finance: get as much money as you can out of your existing medications (wasting assets, all of them), while frantically bringing up things to replace them. Overall, both Merck and Schering-Plough are in better shape than many of their competitors in both of these categories, but the motto that should be carved over the door of every research lab in the industry is You Never Know. We've had an awful lot of big clinical failures the last few years in this business. (In fact, the fact that we've gotten better at eliminating some of the other causes of failure may well have led to an increase in late-stage disasters, taken as a percentage of the whole).

Drug stocks are traditionally supposed to be recession-proof, and today's announcements don't hurt that reputation. But what drug stocks are not is drug-proof. We still don't know which of our compounds will make it, or which ones will stay on the market once they have.

Jump to comments
Presented by

Derek Lowe

Derek Lowe is a drug discovery chemist with 20 years of experience in the pharmaceutical industry, which is still very much his day job. He's worked on projects targeted at Alzheimer's, cancer, diabetes, infectious diseases, and other areas, but like most discovery scientists in the business, he has yet to produce a marketed drug. Explaining how and why this happens is what led to the launch of his blog, "In the Pipeline", in 2002, and the explaining continues. . .
Get Today's Top Stories in Your Inbox (preview)

Social Security: The Greatest Government Policy of All Time?

It's the most effective anti-poverty program in U.S. history. So why do some people hate it?


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In