Merck's sales were down a whopping 8% year over year. My call last October that Merck's drugs were becoming stale (to put it mildly) is finally coming to fruition. Sales of top-selling Singulair were down 4% and quite a few drugs saw huge declines: Cholesterol drugs Zetia and Vytorin, which Merck sells with Schering; human papillomavirus (HPV) vaccine Gardasil; and osteoporosis drug Fosamax all declined in excess of 20%.
None of those declines are big surprises, but they still hurt. Last year's decline of Zetia and Vytorin -- and rise of statins like Pfizer's
Schering's sales were also down -- 6% year over year -- but that was entirely due to changes in currency. At constant currency, sales were up 4%. While they can play havoc on year-over-year comparisons, those international sales are one of the main reasons that Merck wanted to purchase Schering. As long as the company doesn't lose international sales of Remicade and its follow-on golimumab to Johnson & Johnson
Despite the lower revenue, Schering was able to cut costs and increase adjusted earnings by $0.03 over the year-ago quarter. Unfortunately for Schering's shareholders, the stock price is tied to Merck's share price because part of the buyout offer will be paid in shares of Merck. With a lack of growth and a delay of its potential migraine drug blockbuster, Merck's shares are slumping today and dragging Schering down with it.
Until Merck can show that it's capable of growing sales again, investors should be leery of stepping in, even with the dividend yield pushing 6%. There are so many better places to get dividends and a chance for capital appreciation.
Johnson & Johnson is a current Income Investor recommendation and Glaxo is a former pick of the newsletter. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial.