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Merck Likes Its Trajectory

As expected, first-quarter numbers are solid.

Updated from 10:01 a.m. EDT


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reported first-quarter earnings and sales that surpassed Wall Street's estimates thanks to strong results from several veteran products and a handful of newcomers.

The New Jersey-based drugmaker earned 84 cents a share, excluding items, on revenue of $5.77 billion for the quarter. Analysts polled by Thomson First Call had forecast earnings of 72 cents and revenue of $5.36 billion.

After factoring in all of the items, Merck earned $1.7 billion, or 78 cents, for the three months ended March 31. For the same period last year, Merck earned $1.52 billion, or 69 cents a share, on sales of $5.41 billion.

Though the earnings were definitely positive, the report lacked drama because

Merck preannounced its first-quarter numbers last week. That announcement also included an upgrade in guidance for full-year earnings per share to $2.75 to $2.85, excluding items. Merck reiterated that prediction Thursday.

Shares were recently up 7 cents to $49.76.

Merck also provided its first forecast for the second quarter, saying earnings should be 67 cents to 71 cents, again stripping out items. The consensus target is 69 cents. Second-quarter revenue will be "comparable" to the first-quarter's sales, Merck said. Analysts were predicting $5.57 billion.

"Our performance in the first quarter is further evidence that the path we have charted to return Merck to a leadership position in our industry is the right one," said Richard Clark, the chairman and CEO, in prepared remarks. "We still have much to do to realize our longer-term goals."

The company explained that its forecast for higher earnings this year will be aided by higher sales in three key areas -- the asthma drug Singulair, the vaccines business and the category of "other products," which includes many smaller drugs.

Merck raised its forecast for Singulair to a range of $3.9 billion to $4.2 billion, up by $200 million. The vaccines business should produce sales of $3.3 billion to $3.7 billion, up by $500 million. Smaller products should produce sales of $5.4 billion to $5.8 billion, a $200 million increase from an earlier forecast.

During the latest quarter, Singulair posted sales of $1 billion, up 25%. Sales of the Cozaar/Hyzaar blood pressure franchise advanced 14% to $798 million.

Revenue from Merck's vaccines jumped to $903 million from $272 million. A big piece of that gain came from Gardasil, the new vaccine against human papillomavirus, which causes cervical cancer. Gardasil, approved by the Food and Drug Administration last June, reported worldwide first-quarter sales of $365 million. The vaccine has been approved in 69 countries.

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Merck also reported a big gain from its cholesterol joint venture, in which the company helps



sell Zetia. The companies also sell Vytorin, which combines Zetia and Merck's Zocor. They divide the revenue from the joint venture. Worldwide Zetia sales of $544 million rose 31% from the year-ago quarter. Vytorin sales climbed 65% to $624 million.

Despite strong first-quarter results, Clark told analysts the company must work hard to achieve its full-year goals. Those efforts have been affected by several setbacks, including the decision last month to

stop working on an insomnia drug.

Last week, an FDA advisory panel recommended that

the arthritis drug Arcoxia shouldn't be permitted in the U.S. Arcoxia is available in 63 countries, and Clark told analysts that Merck will continue marketing it.

Expressing disappointment with the advisory panel's 20-1 vote against Arcoxia, he said Merck will "continue to work with the FDA" to gain approval. The agency is scheduled to rule April 27.

Arcoxia is a COX-2 inhibitor, the same class of pain reliever as Vioxx, which Merck withdrew for safety reasons in September 2004. The only COX-2 drug available in the U.S. is Celebrex from


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Clark said it was too early to predict Merck's next move on Arcoxia. He said Merck is still evaluating whether to take an experimental cholesterol drug into the third and final clinical-trial stage. This compound belongs to the same class as torcetrapib, the experimental drug for which Pfizer

cancelled development in December.