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Cyber attack hits Merck results, Keytruda notches new milestone

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(Reuters) — Merck & Co. on Friday said quarterly sales of its Keytruda cancer immunotherapy exceeded $1 billion for the first time, but the cost of a cyber attack that temporarily crippled manufacturing and declines in off-patent products caused overall revenue to fall.

Merck's shares fell 4.3 percent to $59.27.

For the first time, the company quantified the cost to its operations of the June NotPetya cyber attack.

It said sales were reduced by about $240 million as the company had to borrow Gardasil from the U.S. Centers for Disease Control and Prevention's pediatric vaccine stockpile to meet demand. Gardasil is Merck's vaccine to prevent cancer caused by the human papillomavirus.

In addition, revenue fell by about $135 million from lost sales in certain markets and there was another $175 million in costs related to the cyber attack. The company expects a similar impact in the fourth quarter.

Keytruda, by far Merck's most important growth driver, saw sales almost triple from a year ago to $1.05 billion.

Merck said nearly one in three new lung cancer patients in the United States were starting with Keytruda and that the launch in bladder cancer was going well. Lung cancer is by far the most lucrative oncology market.

Despite approvals for numerous cancer types, "Keytruda is almost completely reliant on the performance in first-line lung cancer," said Leerink Partners analyst Seamus Fernandez.

"They need to identify other growth drivers for the business," said Fernandez, noting other areas under pressure, such as intense competition for the hepatitis C franchise.

Its Zostavax shingles prevention vaccine is also about to face potentially withering competition from GlaxoSmithKline's just-approved Shingrix, which appears to maintain efficacy far longer. Zostavax sales rose 23 percent to $234 million.

Merck cautioned that its Januvia diabetes drug would face continued pricing pressure. It along with the related Janumet saw sales fall 2 percent to $1.52 billion.

The company's recently off-patent cholesterol medicines Zetia and Vytorin saw sales cut in half at $462 million.

Chief Executive Ken Frazier said business development was an important priority, but that he would prefer bolt-on deals to enhance innovation rather than a major acquisition.

Merck's animal health business reached $1 billion in quarterly sales for the first time.

Eli Lilly and Co. said this week it was looking at a sale or spinoff of its Elanco animal health business. Merck has no such intentions.

"We see animal health as a pillar of growth for the company," Mr. Frazier said.

Merck now expects full-year adjusted earnings of $3.91 to $3.97 per share, above Wall Street estimates of $3.87, according to Thomson Reuters data. It previously forecast earnings of $3.76 to $3.88.

Revenue for the quarter fell 2 percent to $10.33 billion, short of analysts' expectations of $10.54 billion.

Net loss attributable to the drugmaker was $56 million, or 2 cents per share, in the third quarter, compared with a year-ago profit of $2.18 billion, or 78 cents per share.

The net loss was due to a $2.35 billion charge related to its collaboration with AstraZeneca Plc. for cancer drug Lynpraza.

Excluding items, the company earned $1.11 per share, beating analysts' average estimates by 8 cents, with help from cost controls.

Merck said it expects research and development costs to rise in 2018.