Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP) typically release earnings on the same day because they share sales of cholesterol drugs Vytorin and Zetia, but the drugmakers are far from the same.
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Merck
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Schering-Plough
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Market Cap
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$63.9 billion
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$30.6 billion
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2008 Revenue
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$23.9 billion
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$18.5 billion
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Price/Sales*
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2.67
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1.65
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Price/Earnings*
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8.84
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10.76
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2009 Consensus Estimated Revenue Growth
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0.9%
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2.1%
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2009 Consensus Estimated Earnings Growth (Decrease)
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(3.8%)
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(4.0%)
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Source: Yahoo! Finance and company press releases.
*Trailing 12 months, per the earnings press releases.
P/E uses non-GAAP earnings. Estimated growth is from reported 2008 revenue and non-GAAP earnings.
Neither company reports sales of their cholesterol drug joint venture in their revenue line item and, being smaller, Schering is more dependent on those earnings to prop up its bottom line. Sales of Vytorin and Zetia fell 26% year over year in the fourth quarter as doctors switched patients to other cholesterol drugs like Pfizer's (NYSE: PFE) Lipitor, AstraZeneca's (NYSE: AZN) Crestor, or generic versions of statins such as Merck's Zocor or Bristol-Myers Squibb's (NYSE: BMY) Pravachol. This was driven in part by the Enhance trial, which showed that Vytorin wasn't able to lower the amount of plaque in a neck artery more than Zocor.
The falling sales shouldn't last forever though. Eventually all the patients that are going to switch, will have done so, and sales are still growing outside the U.S.
But that's pretty much where the comparison ends. Merck has a bunch of stale drugs, like its human papillomavirus vaccine, Gardasil, which will likely get U.S. competition from GlaxoSmithKline's (NYSE: GSK) Cervarix fairly soon. It has nine drugs in phase 3 trials and 15 in phase 2. And consensus revenue estimates give it essentially flat growth this year.
Schering, on the other hand, is roughly half the size of Merck, has a deeper pipeline of drugs -- 13 in phase 3 and 17 in phase 2 -- and is only 23% behind Merck in revenue, reflected in its lower P/S ratio.
In the short term, both companies will probably perform fairly equally as analysts are projecting. They both cut costs last year, for instance, and plan to continue that to improve earnings. In the long term, though, they can't cut forever and, for just a slightly higher earnings multiple, Schering seems to me to have the better long-term prospects.
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