About three weeks ago now, Merck CFO Peter Kellogg sumed up the near term outlook this way (see page 3 of this Credit Suisse investors’ conference transcript — a PDF file):
. . . .Looking more to the short-term in 2012, one of the things that we did highlight is as you look ahead to next year there are some challenges in terms of what we’ll be going up against in the top-line. Clearly you’re all familiar with the austerity measures and Health Care Reform.
You may be well aware that we have a relationship that’s been very successful with AstraZeneca, but in the first part of next year they’ll have an option, which is completely theirs to execute or not, to unwind the rest of that relationship. That could be a headwind for next year.
In immunology with Remicade and SIMPONI you’re aware that at midyear we relinquished some territories around the world as part of the settlement with J&J. We’ll have that — we are experiencing that impact in the third quarter and the fourth quarter this year, but obviously we’ll be lapping having those territories in the first and second quarter next year.
And then finally, Singulair, one of our biggest products will be going off patent in the midyear time frame, so that will be certain headwind. With that said, in our core business, and you can see that in our results as we go through this year, our core products are doing well, our emerging market performance is great, the JANUVIA | JANUMET franchise continues to exceed all expectations and do very well. And we are very actively launching products all around the world.
And one of the points that we made was actually when you think about the headwinds, we are not in a situation where we’re going to have to deal with a trough, if you will.We are really planning to go through next year where we can maintain our top-line near where it is today. And so we actually think — we’ve done this before.
The magnitude of those headwinds on the left is not totally different than what we’ve seen when we had the FOSAMAX expiry or when we had the Zocor expiry previously as a percentage of our top-line revenue. So we’ve been through this before, we’ve maintained our top-line when we go through it and so that’s what we’re working on. As we stand here today we’re working on our 2012 plan, it’s not really completed.
But [Chairman/CEO] Ken [Frazier] did, in his opening remarks, say as he looks ahead to 2012 what he’s trying to accomplish, what he’s aspiring to is to make sure that we don’t in any way hinder our ability to advance the innovative R&D pipeline.
On the other hand he also in the short-term wants to make sure that 2012 is a year where we continue to achieve strong operating performance. And so we’re trying to maintain the revenues near or at the 2011 levels and continue to drive a leveraged P&L, all of which is — the end result is having a strong pipeline, a lot of excitement coming out of the pipeline in ’12 and ’13 as well as solid, strong financial performance, and we think that will increase shareholder value.
We did — beyond that, that generates a lot of cash. Ken highlighted that our priorities are to, first, make sure we can operate the business with the credit rating that we have; second, to invest in the growth opportunities whether they be in the pipeline or whether they be an expansion of the business. But third, to return cash to shareholders. . . .
We shall see what all else 2012 brings, but Merck did up its dividend by 11 percent (returning more cash to shareholders), shortly after this November 11, 2011 presentation.