Gardasil in Decline, Merck Now Increasingly Dependent on Januvia

(MoneyWatch)  Merck CEO Richard Clark says he cannot "categorically rule out" an acquisition despite a slight uptick in net income, according to the WSJ. You bet he can't. A look at Merck's income statement shows that the company is increasingly dependent on a single drug -- diabetes treatment Januvia -- and that its overall productivity is flatlining. The decline comes in part due to Gardasil already faltering in sales despite legal requirements that U.S. schoolgirls receive the drug.

Q4 2008 sales were $6 billion, down slightly from the year before. But sales and marketing expenses were up more than $100 million over the same period. Merck now gets $3.24 in revenues for every dollar it spends on sales reps. That's not too bad but it has been as high as $3.63 in recent quarters. So sales-wise, this is a company that is treading water.

It's not clear where the growth is going to come from. Look at the individual products:

• Singulair in Q4 declined 3 % to $1.1 billion
• Gardasil in Q4 declined 16% to $286 million
• Fosamax in FY08 lost 49 percent of its sales.
• Zocor in FY08 lost 25 percent of its sales.
• Merck's hepatitis vaccine business is down 47 percent.

At the same time, the costs of the Vioxx fiasco are ruining Merck's productivity. If it were not for legal costs, this company would be in the pink of health. From Merck's earnings release:

Expenses for the full year of 2008 were $7.4 billion, 2 percent less than the Company recorded in 2007.

The full-year 2008 amount included aggregate charges of $102 million solely for future legal defense costs for VIOXX litigation and FOSAMAX litigation.

Marketing and administrative expenses declined 17 percent in the fourth quarter of 2008, excluding the charge for legal defense costs in the fourth quarter of 2008 and the insurance arbitration gain in the fourth quarter of 2007.

For the full year 2008, marketing and administrative expenses declined 6 percent, excluding charges for legal defense costs in 2008 and 2007...

Which leaves Januvia, pumping out $413 million per quarter of Merck's revenue, up 64 percent from the prior year. The drug grosses greater than $1.4 billion a year.

So you can see why Clark is so open-minded about M&A. His other options are, currently, limited.

• More:
• Dissecting Merck's Gardasil for Boys FDA Application