Revenue Declines for Merck

The company's forecast is basically in line with analysts' consensus predictions.
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Updated from 8:39 a.m. EDT

Merck

(MRK) - Get Report

reported second-quarter results that matched Wall Street's expectations, and the drugmaker offered estimates for the third quarter and full year that also were in line with analysts' consensus predictions.

Analysts who might have expected details of new strategies under the leadership of the new CEO Richard T. Clark would have been disappointed. Clark replaced Raymond V. Gilmartin on May 5. Aside from some general comments attributed to Clark in a press release, Merck provided no details.

Clark didn't attend Thursday's second-quarter telephone conference call with analysts and investors, although he is scheduled to attend the third-quarter conference call.

"There is much work to be done," Clark said in a prepared statement. "But we have the financial strength, resolve and capability to accomplish our goals.

Excluding special items, the company said Thursday that it earned $1.36 billion, or 62 cents a share, on revenue of $5.47 billion for the three months ended June 30. Analysts surveyed by Thomson First Call had expected a profit of $1.36 billion, or 62 cents a share, on sales of $5.46 billion.

Merck's second quarter was affected by $640 million in tax charges, worth 29 cents a share. This charge includes a $100 million tax benefit related to new tax planning strategies and a $740 million charge related to the repatriation of earnings from foreign subsidiaries for domestic use. The repatriation, worth $15 billion to Merck, is being used under a tax holiday law signed last year by President Bush. The law allows companies to repatriate foreign-subsidiary earnings at drastically reduced tax rates.

Including one-time items, Merck earned $720.6 million, or 33 cents a share, compared with the year-ago period's profit of $1.77 billion, or 79 cents a share, on revenue of $6.02 billion.

Merck also offered third-quarter guidance, saying EPS, excluding special items, would be in the range of 61 cents to 65 cents. The Wall Street consensus is 63 cents. The company also said its full-year EPS, excluding special items, would be in the range of $2.44 to $2.52. The average analyst prediction is $2.50.

By midmorning, Merck's stock was off 54 cents, or 1.7%, to $31.31.

Additionally, Merck offered an update on litigation involving Vioxx, the arthritis drug that the company pulled from the market in September after clinical trials showed long-term use increased a person's risk of heart attack and stroke. As the first Vioxx trial continues in Texas, Merck said that as of June 30, it's the defendant in 4,100 personal injury lawsuits, involving 7,500 plaintiff groups. The company also is a defendant in 120 lawsuits seeking class-action status.

In addition to the Texas trial, Merck said it expects one or more product liability suits to go to trial this year. "The company believes that it has meritorious defenses to the Vioxx lawsuits and will vigorously defend against them," Merck said.

Although Merck has established a $675 million reserve to finance legal defense costs, it still hasn't established a reserve for potential damages emanating from the lawsuits.

Graeme Bell, senior director for investor relations, told analysts Thursday he would have no comment on the Vioxx litigation or on the company's discussions with the Food and Drug Administration about the possible return of Vioxx to the market. He also declined to provide details on Merck's evolving corporate strategy except to say that CEO Clark's priorities include focusing R&D efforts on compounds with the strongest chance for commercial success, improving productivity and managing costs.

Among its major products, Merck said sales of the cholesterol drug Zocor declined 16% to $1.2 billion in the second quarter vs. the same period last year. Sales of the blood pressure medications Cozaar and Hyzaar gained 8% to $785 million, the osteoporosis drug Fosamax grew 8% to $853 million, and the asthma drug Singulair gained 14% to $730 million.

Worldwide sales of Zetia, a cholesterol drug that Merck co-markets with

Schering-Plough

(SGP)

, reported a 30% increase in sales to $314 million. And Vytorin, a combination pill of Zetia and Zocor, had sales of $193 million in the second quarter. Vytorin was approved in the U.S. 12 months ago.