Updated from 8:02 a.m. EDT
Despite flat year-over-year third-quarter sales and a 34% drop in profits,
once again raised its full-year earnings prediction.
Merck now says it should make $2.48 to $2.52 a share in 2006, excluding one-time charges. The forecast tops its July guidance of $2.40 to $2.48. The company started the year with an EPS estimate of $2.28 to $2.32 before items.
"Given the results of the quarter, we remain on track to meet the goals we set for ourselves with our new business strategy," said Richard Clark, the CEO and president. Additionally, Judy Lewent, Merck's chief financial officer, said the company is "fully committed" to maintaining the dividend at current levels.
Investors liked what they heard. By midday, the stock was up 75 cents, or 1.7%, to $45.24. Earlier, it rose to $45.48, a 52-week high.
The new outlook came as Merck took a new charge to expand its reserves for handling Vioxx-related litigation. The company also revealed the initial damage from generic competition to the cholesterol drug Zocor, which has been Merck's biggest product.
For the three months ended Sept. 30, Zocor's worldwide sales dropped 65% from a year ago to $371 million. During the first nine months of the year, the drug's revenue was $2.4 billion, down 27% from the same period last year.
Merck lost U.S. patent protection for Zocor in late June. The sales slide is expected to accelerate as more generic versions enter the market later this year and in early 2007. At the moment, there is only one generic competitor. In addition, Merck licenses Zocor to another generic-drug company, which pays a royalty based on sales of the reduced-price product.
The New Jersey-based pharmaceutical giant earned $940.6 million, or 43 cents a share, in the latest quarter, down from $1.42 billion and 65 cents a share in the same period a year earlier.
Earnings would have been 51 cents a share, including a charge of $598 million in the third quarter for future Vioxx legal-defense costs, but excluding a net charge of 8 cents for site closings and job cuts. On that basis, Merck beat the consensus Thomson Financial estimate by a penny.
Total sales were little changed year over year, coming in at $5.41 billion, but were much better than the $4.97 billion predicted by analysts.
The third-quarter Vioxx charge reflects an increase, to $958 million, in the amount set aside for defending lawsuits in the U.S. and in other countries. During the first nine months of the year, Merck spent $325 million on Vioxx defense efforts. The company hasn't established a reserve for potential liabilities.
Merck said it has been named as a defendant in 23,800 personal injury lawsuits. Clark said roughly two-thirds of the states had a cutoff date of Sept. 30 until which people could file complaints over the drug that was taken off the market in September 2004.
"Management now believes it has a better estimate of the company's expenses and can reasonably estimate such costs through 2008," Merck said. "Events such as scheduled trials that are expected to occur throughout 2007 and into 2008, and the inherent inability to predict the ultimate outcomes of such trials, limit the company's ability to reasonably estimate its legal costs beyond the end of 2008."
During the third quarter, the drop in Zocor's sales was offset by strong performances from several products. Worldwide sales of the asthma drug Singulair rose to $868 million, up 25% from the same period last year. Sales of the Cozaar and Hyzaar blood-pressure medications rose 8% to $813 million.
Vaccine sales jumped 64% to $555 million thanks to the introduction of three new products -- Gardasil for defending against a virus that can cause cervical cancer in girls and young women, Rotateq for preventing debilitating diarrhea in young children and Zostavax for reducing the risk of shingles in people age 60 year and older.
Combined sales of the cholesterol drugs Zetia and Vytorin climbed to $1.03 billion, up from $630 million last year. Merck sells the drugs in a joint venture with
. Zetia was developed by Schering-Plough, and Vytorin is a combination pill containing Zetia and Zocor.
Sales of the Fosamax family of osteoporosis drugs slipped 1% to $771 million. Although U.S. sales rose 7%, foreign sales were hit by competition in major markets.