Archives for April 2021

Toilet paper, baby care products, soft drinks and many other everyday products are about to get more expensive.

Procter & Gamble, Kimberly-Clark and Coca-Cola have all warned that they’ll raise prices on many of their products as raw material costs rise. Plastic, paper, sugar, grain and other commodities are all getting more expensive as demand outpaces supply. Companies are also paying more for shipping as fuel costs rise and ports experience longer delays because of congestion.

The potential hit to consumers’ wallets comes as the economy returns to some semblance of normalcy. Vaccine distribution continues at a steady pace, promising to put the worst of the pandemic and business shutdowns in the past. States have been loosening restrictions and businesses are reopening to a lot of pent up demand from people who have been staying cautiously close to home during the pandemic.

But that improving economy and pent-up demand is straining distribution channels for raw materials and other goods.

Prices for many consumer goods, such as toilet paper, ticked up modestly over the last few months, according to data from NielsenIQ. Pressure is building, though, as costs increase for companies and many have signaled that the price increases are coming later this year and likely into 2022 to offset the impact.

Cheerios maker General Mills is considering raising prices on its products as things like grain, sugar and other ingredients become more expensive. Hormel Foods has already increased prices for Skippy peanut butter and its turkey products. Kimberly-Clark, which makes Kleenex tissues and Scott toilet paper, said price increases will cover about 60% of its product portfolio and expects the increases and more productivity to offset most of the higher raw material costs.

Soda giant Coca-Cola has said it expects to raise prices to fight higher costs, while Procter & Gamble is raising prices for baby, feminine and adult care products.

U.S. consumer prices increased a sharp 0.6% in March, the biggest uptick since 2012, while inflation over the past year jumped 2.6%. Some of the increases have been anticipated by Wall Street as the economy improves and inflation increases with it. The pace and size of inflation increases still remains a concern. Treasury bond yields spiked earlier this year, though they have since stabilized. They are being watched closely because another sharp jump could stunt the economic recovery.

“Rates are in a holding period and everybody’s curious to see if this holding period is going to last,” said J.J. Kinahan, chief strategist with TD Ameritrade.

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Merck is entering a new era, with sweeping changes across its executive suite and the spinoff off its women’s health and other businesses, a bid to enable both resulting companies to grow faster.

The massive management makeover, mostly triggered by longtime Chief Executive Ken Frazier’s upcoming retirement, occurs as the drugmaker says hits to sales of many of its medicines amid lockdowns and other impacts from the global coronavirus pandemic will lessen and sales will rise over the rest of the year.

Frazier, who has run Merck & Co. since January 2011, oversaw a quadrupling of revenue and Merck’s emergence as a powerhouse in cancer drugs over the decade.

Now 66 and the only Black CEO of a major drugmaker, Frazier will retire on June 30, causing a domino effect of job changes. He’ll be succeeded by Chief Financial Officer Rob Davis, who will be replaced by company treasurer Caroline Litchfield. Her replacement hasn’t been named yet.

Michael Nally, head of marketing for Merck’s huge prescription drug business and a candidate to replace Frazier, departed last month. The chief commercial officer for that business, Frank Clyburn, will become its president and lead both commercial strategy and marketing.

And in January, Dr. Dean Li became head of Merck’s highly regarded research labs, taking over for now-retired Roger Perlmutter.

On Thursday, Merck reported its first-quarter profit dipped 1% as people continued to put off doctor and hospital visits early this year due to the COVID-19 pandemic, and it spent more on research and production.

“Results were disappointing relative to expectations,” Edward Jones analyst Ashtyn Edwards wrote to investors, noting lower rates of new diagnoses, such as for cancer, “were greater than expected during the first quarter.”

Even though Merck maintained its 2021 profit forecast, its shares plunged more than 5%.

The drugmaker said it’s focusing its efforts on fighting the pandemic on two fronts: testing of its experimental COVID-19 treatment molnupiravir with partner Ridgeback Biotherapeutics, and helping to manufacture Johnson & Johnson’s COVID-19 vaccine under a recent deal. The J&J partnership follows the failure of two experimental vaccines that Merck dropped after early results showed they weren’t very effective.

Merck plans to soon begin late-stage testing of molnupiravir, a pill meant for treating outpatients to prevent hospitalizations. The company, based in Kenilworth, New Jersey, also is evaluating the drug’s potential for preventing infection in people recently exposed to the COVID-19 virus.

The maker of cancer blockbuster Keytruda and Januvia diabetes pills said net income declined to $3.18 billion, or $1.25 per share, from $3.22 billion, or $1.26 per share, a year earlier.

Adjusted earnings came to $3.56 billion, or $1.40 per share, far below the $1.63 Wall Street was expecting.

Revenue totaled $12.08 billion, up just a tad from $12.06 billion last year.

Frazier told analysts on a conference call to discuss the results that he’s confident in Merck’s future and new leadership.

But in afternoon training, shares were down $4.01, or 5.2%, at $73.08.

Merck’s prescription drug sales were hurt by generic competition to several drugs, and the pandemic reduced sales of doctor-administered drugs and other medicines used in hospitals, a key business for Merck. Sales of Merck’s vaccines for children and adults fell as the country focused on a massive COVID-19 vaccination campaign under the new Biden administration.

Prescription drug sales were flat at $10.68 billion, led by cancer immunotherapy Keytruda, which hauled in $3.9 billion — nearly one-third of total revenue. Januvia and combo drug Janumet for Type 2 diabetes brought in a total of $1.3 billion.

Veterinary medicine sales jumped 17% to $1.42 billion, mainly driven by higher sales of products for pets.

During the quarter, Merck started a partnership with Gilead Sciences developing long-acting HIV treatments that combine one drug from each company. And on April 1, Merck completed the acquisition of Pandion Therapeutics, a developer of therapies for autoimmune disorders, an area where Merck hopes to expand.

In addition, during the quarter the U.S. Food and Drug Administration approved new heart failure drug Verquvo and began reviewing applications to approve three experimental drugs, for chronic cough, for a rare condition associated with kidney cancer and for an improved pneumococcal vaccine.

Merck expects adjusted earnings per share for 2021 of $6.48 to $6.68 and revenue of $51.8 billion and $53.8 billion; both are unchanged from its January forecast.

Merck plans on June 2 to complete the spinoff of its Organon women’s health business, which will now also include off-patent former blockbusters like respiratory drugs Singulair and Nasonex, plus Merck’s unit that makes biosimilars, or near-copies of pricey biologic drugs.

If the spinoff happens by then, Merck plans to update its financial forecasts.

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