UPDATE 3-Merck KGaA’s outlook disappoints as drugs weigh

* Q4 core operating profit 258 mln euro, vs forecast 309 mln

* Sees core op profit growth of 3-13 pct in 2010

* Cuts dividend to 1.00 euro, vs forecast 1.49 euro

* Shares down 6.8 percent to lowest in almost a year

(Adds analyst comment, shares)

By Ludwig Burger

DARMSTADT, Germany, Feb 23 (BestGrowthStock) – Merck KGaA (MRCG.DE: ),
the world’s largest maker of chemicals for flat screens, gave a
cautious 2010 outlook well below market forecasts and cut its
dividend reflecting uncertainty over its drugs pipeline.

The family controlled drugs-to-chemicals company said on
Tuesday it was targeting 3-13 percent growth in core operating
profit this year, below the 25 percent seen in a Reuters poll.
[ID:nLDE61H1AI]

“The guidance for the pharmaceuticals business is very weak
and there’s also little transparency,” LBBW analyst Hanns
Frohnmeyer said.

The shares were down 6.8 percent to 60.07 euros at 0920 GMT,
the lowest in almost a year, while the European DJ Stoxx Health
Care Index (.SXDP: ) was down 0.4 percent.

The German company proposed the first cut in its regular
dividend since 2004, down to 1 euro per share from 1.5 euro last
year, while analysts had predicted an unchanged payout.

Companies around the world including German carmaker Daimler
(DAIGn.DE: ) have been slashing their 2009 dividends amid the
economic crisis. Still, fellow drugmakers Novartis (NOVN.VX: ) and
Roche (ROG.VX: ) are paying higher-than-expected dividends.

FALLING BEHIND

Merck has fallen behind rival Novartis in the race to get
the first oral multiple sclerosis treatment to market after U.S.
regulators held up Merck’s application to bring its cladribine
pill to market. [ID:nLDE60I05W]

In addition, Europe’s drugs watchdog last year rejected
Merck’s application to use its key cancer drug Erbitux against
lung tumours, the most common form of cancer.

“It seems Merck has budgeted marketing and development
expenses for cladribine for this year even though uncertainty
over regulatory approval lingers,” another analyst said,
speaking on condition of anonymity.

“The wide range given for the expected operating profit is
particularly ill-received by the market,” he said.

Fourth-quarter core operating profit — excluding one-off
items tied to its 2007 takeover of Swiss biotech company Serono
— slipped 16 percent to 258 million euros ($351.5 million),
missing the average estimate of 309 million in a Reuters poll.

That was mainly due to 170 million euros Merck set aside for
pending legal disputes linked to its former generics business —
sold to Mylan (MYL.O: ) in 2006 — and to licensing and
development agreements over its best-selling Rebif MS drug.

On the upside, the liquid-crystals unit — the world’s No. 1
maker of chemicals used in for TV-, computer- and hand-held
displays — posted an operating margin of 45.3 percent, better
than expected and up from 31 percent last year, as demand for
consumer electronics picked up, especially in China.

Merck shares trade at about 12 times estimated earnings over
the coming 12 months, below the average multiple of more than 13
for drugmakers, amid uncertainty over future sales of cladribine
and Erbitux, based on StarMine data.

Thomson Reuters StarMine weights estimates according to
analysts’ accuracy track record.

Money

(Additional reporting by Frank Siebelt and Maria Sheahan;
Editing by David Cowell and Sharon Lindores)

UPDATE 3-Merck KGaA’s outlook disappoints as drugs weigh