Vioxx Charges Hit Merck

Merck(MRK) aired quarterly and annual results Wednesday, bestowing the pain of its Vioxx settlement on the fourth quarter and describing the hoopla surrounding its cholesterol-drug turmoil a "reaction" that doesn't have it second-guessing its long-term trajectory.

Shares, which are down 25% since its "Enhance" trial results on cholesterol-lowering drug Vytorin earlier this month, fell $2.19, or 4.4%, to $45.92 in recent trading.

The Whitehouse Station, N.J.-based pharmaceutical maker's overall 2007 results included $4.85 billion in charges related to the Vioxx settlement, $2 billion in lost sales due to patent expiry and $810 million in charges tied to a restructuring that eliminated 7,200 jobs. However, it still managed to meet earnings expectations, surpassing anticipated per share results on an adjusted basis.

On a GAAP basis, Merck reported a fourth-quarter net loss of $1.63 million, or 75 cents share, including charges related to the Vioxx settlement agreement. Excluding those charges, the company reported adjusted earnings of 80 cents a share in the fourth quarter, on sales of $6.2 billion, a 3% year-over-year increase.

Analysts surveyed by Thomson Financial were looking for 74 cents a share on revenue of $6.29 billion.

For the year, Merck reported earnings of $3.27 billion, a 26% decline from 2006. The profit translates to $1.49 a share on a GAAP basis, including the charges related to the Vioxx settlement, civil governmental investigations, restructuring and an insurance arbitration gain. Factoring those charges out, the company reported earning $3.20 a share, on worldwide sales of $24.2 billion, a 7% rise over 2006.

Analysts had predicted $3.15 a share on revenue of $24.3 billion.

Back to quarterly results, sales of the company's Singulair totaled $1.2 billion for the quarter, a 20% increase year over year.

Bone-density drugs Fosamax and Fosamax Plus D accounted for $796 million in sales in the fourth quarter, an increase of 1% over the year-ago quarter. The drugs lose marketing exclusivity in the U.S. in February and April of 2008, respectively, and Merck expects a significant decline in sales in the U.S. to result.

Merck's vaccine sales totaled $1.1 billion for the quarter, including $339 million from cervical cancer vaccine Gardasil.

Last but far from least, Merck reported sales of $1.5 billion from the partnership with Schering-Plough(SGP) for its now controversy-ridden cholesterol drugs Zetia and Vytorin, a 34% increase vs. the comparable 2006 quarter. For the year, combined annual sales of the drugs totaled $5.2 billion.

On Jan. 14, the companies aired the results of the Enhance trial, which compared the use of Vytorin, which is a combination of Zetia plus a statin, to the use of a statin alone. The trial found that the pricier Vytorin did no more to lessen the build-up of arterial plaque than the less expensive statin, regardless of its ability to lower bad cholesterol. The trial results have led to speculation about the delay in the release of the trial's results during a time in which the drugs brought in a significant amount of money.

The Food and Drug Administration held a press briefing last Friday to address the issue. The company reiterated in its earnings release Wednesday that it (along with partner Schering) has received letters related to a congressional investigation regarding the trial and the promotion of Vytorin in addition to subpoenas from the New York State Attorney General's Office seeking similar information.

"Merck stands behind the safety and efficacy profile of both Zetia and Vytorin," noted executives on its earnings call Wednesday. The company emphasized that the Enhance study wasn't powered to assess the relationship between LDL-lowering and clinical outcomes, but its Improve-it trial is. That data, however, won't be available until roughly 2011.

As to the possible future effects of the Enhance results on the company and its cholesterol-lowering franchise, Merck executives said they feel it's too early to change the long-term trajectory of the company, with the belief that the current turmoil is still a "reaction" in the market.

Looking ahead, Merck anticipates adjusted earnings of $3.28 to $3.38 a share, and $3.80 to $4 on a GAAP basis. Analysts are looking for $3.36 a share.

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