Merck Aims to Regain Footing

With earnings per share and revenue expected to decline for several years, Merck (MRK) needs to convince Wall Street that it has a firm plan to operate as a leaner pharmaceutical giant.

This week, several events could set the tone for both near-term and long-term prospects for the company.

The big day is Dec. 15, when Merck will unveil the second part of its restructuring plan. The first part of the strategy was laid out Nov. 28, but Wall Street was underwhelmed as Merck talked about cutting 7,000 jobs, or 11% of its workforce, and improving manufacturing practices. The stock lost 4.6% that day.

This time around, Merck will focus on marketing, as well as research and development. Look for more details on how the company plans to cut costs and perhaps refocus its R&D efforts.

On Dec. 14 and Dec. 15, two other important events will take place when an advisory committee of the Food and Drug Administration reviews applications for Rotateq, a vaccine for gastroenteritis, and Zostavax, a vaccine for shingles.

However, these two products, if ultimately approved, won't produce revenue anywhere near the $5.2 billion in sales that the cholesterol drug Zocor, which loses U.S. patent protection in June, had last year. A recent report by Sanford C. Bernstein predicts Rotateq could be a $400 million drug in 2008, with Zostavax contributing another $100 million. Still, an advisory panel endorsement could at least boost morale.

More Potential

Rotateq guards against rotavirus, which, Merck says, is a major source of diarrhea-caused hospitalizations worldwide. The virus annually kills nearly 500,000 children under age 5. In the U.S., rotavirus causes about 50,000 hospitalizations and 20 to 40 deaths a year.

Zostavax protects against a disease that usually strikes people over 50 and can affect anyone who had chickenpox. Shingles can cause itching, tingling, nerve pain and skin rashes.