Merck Mauled on Drug Recall

Prior to the Vioxx withdrawal, analysts had been expecting earnings of $3.11 to $3.17 per share, and Gilmartin said he had been comfortable with those predictions prior to Thursday's announcement.

The reduced estimate reflects forgone sales, write-offs of inventory, customer returns of product previously sold, and costs to undertake the pullback of the product. The company also said it was withdrawing its financial guidance for the third quarter. Merck estimated that forgone fourth-quarter sales of Vioxx will amount to $700 million to $750 million. In addition, Merck expects that about one month's worth of inventory worldwide is held by customers and will be returned.

"At this point it is uncertain which of these costs will be recorded in the third quarter and which will be recorded in the fourth quarter," Gilmartin said. "Therefore, at this point, Merck is retracting the third-quarter guidance it had previously provided."

Gilmartin said that despite the Vioxx action, the company is "very strong financially." He said the economic impact won't force Merck to close any plants, fire sales staff or adjust its stock dividend.

More Bad News

The latest clinical trial follows a recent study sponsored by the Food and Drug Administration that said that Vioxx put users at a greater risk of heart attacks than Pfizer's Celebrex. The study said people using Merck's arthritis drug had a 50% greater chance of heart attacks and sudden cardiac death than those using Pfizer's Celebrex. Both drugs are called COX-2 inhibitors.

In response to that news, Kaiser Permanente, which contributed resources to the study, said it would review the drug. Merck officials on Thursday reiterated their previous criticism that this study wasn't adequately designed. Peter Kim, president of Merck Research Laboratories, said Thursday that the FDA-sponsored study was an observational look at past data rather than a clinical trial, like the one that led to Merck's decision to withdraw Vioxx.

Vioxx and Celebrex have been important drugs for the companies. For the six months ended June 30, Pfizer sold $1.5 billion worth of Celebrex and $545 million worth of Bextra, another COX-2 inhibitor.

Pfizer, whose shares rose on the news, said Thursday that it was confident in the long-term safety of its drug.

For the first half of the year, Merck reported worldwide Vioxx sales of $1.3 billion, plus another $92 million in foreign sales for Arcoxia, a next-generation COX-2 inhibitor. Vioxx was launched in the U.S. in 1999 and has been marketed in more than 80 countries. Worldwide sales of Vioxx in 2003 were $2.5 billion.

The decision to withdraw Vioxx also raises questions about Arcoxia, but Merck executives said Thursday that tests of one drug cannot be extrapolated to another.

"The results of clinical studies with one molecule in a given class are not necessarily applicable to others in the class," the company said.

Merck said it will work with regulators in the 47 countries where Arcoxia is approved "to assess whether changes to the prescribing information...are warranted." The company said it continues to seek approval for Arcoxia in other countries, including the United States. "Merck will continue its extensive clinical program to collect additional longer-term data for Arcoxia as a treatment for arthritis and acute pain.

>To order reprints of this article, click here: Reprints