Updated from 12:17 p.m. EDT
chief executive said Monday that he will unveil a comprehensive plan for reducing expenses and improving efficiency at the drugmaker by the end of the year.
Richard Clark, who became CEO in May, didn't provide details in a telephone conference with analysts. He said Merck would offer a plan in mid-December plus "milestones and metrics that can be used to evaluate our progress against them."
The guidelines could feature different business models and practices, as well as cost-cutting, he added. The plan must take into account the impact of withdrawing the arthritis drug Vioxx 13 months ago and the ongoing damage from patent expirations. The biggest revenue hit will come in mid-2006 when the cholesterol drug Zocor loses U.S. patent protection.
Clark reiterated several stances taken by his predecessor Raymond Gilmartin. For instance, he said he wants to maintain the dividend at its current level and added that the payout remains secure. Clark doesn't see any benefit to making a giant acquisition, but he said small, targeted purchases are possible.
The comments came during Clark's first major address to analysts, just after Merck released third-quarter earnings that beat Wall Street's estimates. Sales, however, were slightly short of the consensus prediction and below the same period last year.
Merck earned $1.42 billion, or 65 cents a share, in the quarter, compared with $1.33 billion, or 60 cents a share, a year ago. Third-quarter sales fell 2% to $5.42 billion. On average, analysts surveyed by Thomson First Call expected earnings of 62 cents a share on sales of $5.45 billion.
At midafternoon, the stock was up 36 cents, or 1.4%, to $26.54.
For the full year, the company expects earnings of $2.47 to $2.51 a share, excluding charges. Analysts were predicting $2.49 a share. Merck's estimate excludes a 29-cent charge related to the company's repatriation of foreign earnings for domestic use under a tax law signed by President Bush last year.
The guidance will provide some relief to investors spooked by
last Thursday's profit warning at
, which cited lackluster sales of cholesterol drugs.
Part of Pfizer's problem was the encroachment of market newcomers Zetia and Vytorin, which Merck sells via a joint venture with
. Vytorin combines Schering-Plough's Zetia with Zocor. Aggregate global sales of these lipid-reducers totaled $630 million in the latest quarter, with combined new prescriptions of the pair totaling 13.7% of the U.S. market, Merck said Monday.
Zocor recorded worldwide sales of $1 billion in the third quarter, or 14% below the same period last year. Sales were hurt by patent expirations in some foreign markets, competition from another generic cholesterol drug in the U.S. and the impact from Vytorin.
Sales of the asthma drug Singulair rose 11% to $692 million, while sales of the Cozaar/Hyzaar blood pressure medications rose 6% to $751 million. Sales of the Fosamax osteoporosis medication were flat at $777 million.
The latest quarter includes costs of $80 million relating to cutting 825 jobs. The year-ago period included Vioxx withdrawal costs of $141 million and position eliminations of $34 million. Including those, marketing and administrative expenses fell 1% year over year; excluding them, such costs rose 5% in the quarter. Research and development expenses were $943 million during the third quarter, up 3% from a year ago.
The company said it hasn't changed its $675 million reserve for Vioxx litigation costs, and it hasn't yet created a reserve for adverse judgments. The number of individual personal injury lawsuits had climbed to 6,400 by Sept. 30, and the number of class action lawsuits is up to 160.
Kenneth Frazier, senior vice president and chief counsel, said six trials could take place within the next six months, including the first federal court case which is scheduled for late November in Houston.
Merck lost the first Vioxx case in August in a Texas state court. The company is appealing. A second case in a New Jersey state court is continuing.
Merck is defending itself using "sound reliable science," Frazier said Monday, adding that the company is "prepared to take a long-term view of the litigation."
Clark said Merck hasn't decided whether to seek permission from the Food and Drug Administration to reinstate Vioxx. An FDA advisory committee recommended by a 17-15 vote in February that
Vioxx could be returned to the market with certain restrictions.