(Bloomberg) — Merck KGaA’s first-quarter earnings missed analyst estimates as the German manufacturer of drugs and specialty materials spent more on marketing and research as it tries to reinvigorate its pharmaceutical business.
Earnings before interest, taxes, depreciation and amortization excluding one-time items rose 5.7 percent to 853 million euros ($963 million) from a year earlier, the company said Tuesday in a statement. That fell short of the 863.5 million-euro average of eight analyst estimates collected by Bloomberg. Revenue rose 16 percent, just ahead of estimates.
Chief Executive Officer Karl-Ludwig Kley is spending more to develop cancer medicines after Merck (NYSE:MRK) went a decade without a major drug approval. He struck a deal with Pfizer Inc. last year that could deliver as much as $2 billion in revenue. Merck is also diversifying with acquisitions like AZ Electronic Materials SA, which brought it specialty products for use in electronics, and the planned $17 billion purchase of Sigma-Aldrich Corp., which sells chemicals used in research labs.
“It’s a so-called transition year,” said Peter Spengler, an analyst at DZ Bank AG in Frankfurt. “They are investing now for higher earnings in the future. It makes sense.”
Investors have generally endorsed that view, sending the stock up about 60 percent in the last year, about double the return of the Bloomberg Europe Pharmaceutical Index. But some analysts say Merck’s approach is risky.
“If they fail in oncology and in MS, and they don’t find anything transformational, then it’s one big tail without anything new coming through,” said Marietta Miemietz, an analyst at Primavenue in London. “The biggest risk is that they get left behind in the innovation race.”
The Darmstadt-based company’s two most successful drugs are Rebif for multiple sclerosis and Erbitux for cancer. Merck and Pfizer agreed last year to co-promote Xalkori, a lung cancer drug developed by Pfizer, and collaborate on avelumab, a medicine from Merck’s labs that harnesses the body’s immune system to attack cancer cells.