This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Merck Moves Fall Flat

The third Vioxx trial starts Tuesday in a federal courthouse in Houston. Merck lost a state-court case in Texas in August and won a state-court case in New Jersey in early November. As of Sept. 30, Merck said more than 6,400 U.S. lawsuits had been filed claiming Vioxx had caused an injury or a death.

For 2006, Merck expects to earn $2.28 to $2.36 a share, excluding restructuring charges, but including an expense of 7 cents for expensing stock options. The estimates exclude potential Vioxx liability reserves. The consensus forecast is $2.38 a share.

When calculated using generally accepted accounting principles, Merck predicts 2005 earnings of $2.04 to $2.10 and a 2006 profit of $1.98 to $2.12.

The company said its manufacturing overhaul should enable gross profit margins after 2008 to return to the level seen before the loss of Zocor's U.S. market exclusivity. The cholesterol drug, which has been losing patent protection in some foreign markets, will be hit by generics in the U.S. in June.

Zocor had $5.2 billion in worldwide sales last year. Merck expects sales to be $4.2 billion to $4.5 billion this year, before falling to $2.3 billion to $2.6 billion in 2006.

The New Plan

The new manufacturing plan will cost $350 million to $400 million this year and $800 million to $1 billion next year. Through the end of 2008, Merck sees cumulative pretax costs of $1.8 billion to $2.2 billion, with about70% being noncash expenses related to accelerated depreciation of the closed plants.

Barbara Ryan, of Deutsche Bank Securities, says the Merck restructuring appears to be less aggressive than the plan at Pfizer (PFE - Get Report). She doesn't own shares, but her firm says it does and seeks to do business with companies mentioned in research reports.

Pfizer has said it wants to produce $4 billion in cost savings a year by 2008. Pfizer said it expects to save $400 million this year, $2 billion next year, $3.5 billion in 2007 and $4 billion in 2008. The cost of implementing the restructuring could be as much as $5 billion over four years.

Additionally, Pfizer has announced plans to shed six plants and several smaller facilities. Pfizer wants to cut by 25% the number of worldwide plants it has. The changes will lead to job losses, but Pfizer executives say they'll inform employees of specific reductions before they tell Wall Street.

Merck also cut its estimate of 2005 capital spending by $100 million to $1.4 billion and said expenditures will fall another $100 million next year. Total capital spending from 2005 to 2008 will likely be about $1.3 billion below the company's expectations for long-range capital spending at the end of 2004, Merck said. The new estimates are on top of a previously announced $600 million reduction.

One goal of the plan is to bring new drugs to market faster. The company will identify certain facilities "that will support production needs from late-phase clinical trials through the launch phase," trying to cut 12 to 15 months from the product-launch process.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
PFE $32.91 0.00%
MRK $55.74 0.00%
AAPL $95.03 0.21%
GOOG $691.02 0.00%
FB $116.73 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs