Merck's CEO Praises Progress

First-quarter earnings are 6 cents above expectations.
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Updated from 7:50 a.m. EDT

Merck

(MRK) - Get Report

unveiled first-quarter financial results that were strong enough for the drugmaker to raise its full-year earnings-per-share prediction.

The company's announcement comes at a time when it faces two major challenges. The first is that its biggest product, the cholesterol drug Zocor, is losing U.S. patent protection in late June. The second is the uncertainty surrounding the continuing Vioxx litigation.

Merck's 2006 earnings forecast, which excludes potential liabilities from Vioxx cases and one-time charges, was lifted to a range of $2.32 to $2.40 a share from a previous range of $2.28 to $2.36. The consensus among analysts polled by Thomson First Call is $2.35 a share.

"We clearly are

making progress against the goals we outlined in December to return Merck to an industry-leading position," said Richard Clark, the president and CEO.

The news sent Merck's stock up 69 cents, or 2%, to $35.09 in midday trading.

For the first quarter, Merck's earnings of 78 cents a share, excluding charges, easily beat the Wall Street consensus of 70 cents. Sales of $5.41 billion were a shade below the average estimate of $5.43 billion.

The first-quarter performance

was even better than the estimate that Merck issued in early April when it said earnings would be 71 cents to 75 cents a share before charges. At the time, the average estimate was 64 cents.

After accounting for all items, Merck earned $1.52 billion, or 69 cents a share, for the three months ended March 31. The EPS figure includes a 9-cent charge for closing plants and reducing personnel. Merck cut 1,800 jobs during the first quarter, on its way to eliminating 7,000 positions worldwide by 2008.

For the same quarter last year, the company earned $1.37 billion, or 62 cents a share, on revenue of $5.36 billion.

Merck also predicted that second-quarter earnings would be 62 cents to 66 cents a share. The Wall Street consensus forecast is 62 cents. And, in what has become a quarterly ritual, the company said it has the financial strength to maintain its dividend at the current level.

Merck said Zocor's sales were better than expected thanks to growth in the general cholesterol-drug market and a strong showing in the U.S., where revenue from Zocor rose 13% to $833 million. However, foreign sales fell 37% to $231 million, reflecting the impact of generic competition.

Merck is benefiting, albeit briefly, from managed-care companies encouraging patients and doctors to switch to Zocor in anticipation of the drug's patent expiration. Analysts expect generic Zocor

to put pressure on sales of brand-named drugs such as

Pfizer's

(PFE) - Get Report

Lipitor.

Executives offered little comment on Vioxx, the arthritis drug that Merck pulled from the market in September 2004 because of its heightened risk of cardiovascular damage for people who took it for more than 18 months. Merck has been named in 11,500 U.S. personal-injury lawsuits and 190 class-action suits

alleging physical injuries or economic damage.

Vioxx belongs to a class of drug called COX-2 inhibitors. Merck said it continues to conduct studies on another COX-2 drug called Arcoxia. Although the Food and Drug Administration has granted conditional approval for Arcoxia, one big condition is additional clinical research.

One test, started in 2002, is measuring Arcoxia's cardiovascular safety vs. another pain reliever, diclofenac, among 34,000 arthritis patients. The median treatment time is 20 months, and the results are expected by the end of the year. Arcoxia produced $59 million in first-quarter sales from markets in Europe, Africa, Asia and South America.

Among Merck's signature products, worldwide sales for the asthma drug Singulair rose 9% to $801 million, and sales of the Cozaar/Hyzar hypertension drugs slipped 2% to $701 million.

Sales of the osteoporosis drug Fosamax lost 2% to $754 million. Fosamax has begun to be hit by generic competition in some foreign markets. U.S. sales rose 11% from the same period last year. Fosamax will lose patent protection in many major European markets next year.

Merck's joint venture with

Schering-Plough

(SGP)

enjoyed sales of $793.2 million, up from $510.6 million a year ago. Merck helps market Schering-Plough's cholesterol drug Zetia, as well as Vytorin, a pill that combines Zetia and Zocor.