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Merck CEO Talks Growth

Updated from 7:55 a.m. EST

Merck (MRK - Get Report) released fourth-quarter earnings that beat Wall Street's estimates, as sales held steady while restructuring and legal costs were slightly lower in the latest period.

The drugmaker also issued 2006 guidance that was in line with analysts' predictions. Merck's sliding financial performance could hit its nadir this year, thanks to the continuing impact of patent expirations on big products, as well as the continuing uncertainty over Vioxx litigation.

Beyond this year, Merck's progress will depend on how well new drugs perform, how many experimental compounds make it to the market, how effectively Merck makes licensing deals or acquisitions and how juries react to Vioxx.

Merck took a $295 million charge in the fourth quarter, adding to the litigation reserve for the arthritis drug that it withdrew from the market in September 2004 for safety reasons.

Already, Merck has spent $285 million to defend Vioxx cases. The reserve now stands at $685 million. As of Dec. 31, Merck was the defendant in 9,650 U.S. personal injury suits and 190 class-action suits alleging personal injuries or economic losses.

Despite its Vioxx woes, Merck reported fourth-quarter earnings of 64 cents a share, excluding one-time items. That topped by 2 cents the consensus estimate of analysts polled by Thomson First Call.

Calculated by generally accepted accounting principles, Merck earned $1.12 billion, or 51 cents a share, compared with $1.10 billion, or 50 cents a share, for the same period last year. Sales were $5.77 billion in the latest quarter, compared with $5.75 billion a year ago.

For the full year, Merck's earnings per share of $2.53, before items, was 2 cents better than the analyst average.

By midday, Merck's stock was up 12 cents to $34.58.

Richard T. Clark, the CEO, said the fourth-quarter and full-year performance "serves as a platform for the future." He says the company can deliver "double-digit compound earnings growth ... over the next three to five years" when restructuring charges are excluded. Earnings per share, excluding restructuring charges, should resume growing in 2007, he says.
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