Merck swings to 4Q profit, beats forecasts

Drugmaker Merck & Co. said Tuesday it swung to a sizable fourth-quarter profit, after a year-ago loss due to a whopping charge, and — despite lower sales of key products — beat Wall Street expectations.

The maker of vaccines, cholesterol drugs and asthma treatment Singulair reported a profit of $1.64 billion, or 78 cents per share. A year ago, Whitehouse Station, N.J.-based Merck posted a loss of $1.63 billion, or 75 cents per share, mainly due to a $4.85 billion charge for a settlement to end most of the patient lawsuits over its withdrawn painkiller Vioxx.

Excluding charges of $204 million, or 9 cents per share, for restructuring, the world's No. 8 drugmaker by revenue reported earnings per share of 87 cents.

Fourth-quarter revenue declined 3 percent, to $6 billion.

Analysts surveyed by Thomson Financial were expecting, on average, earnings per share of 74 cents and revenue of $5.98 billion.

Wall Street apparently liked the results, driving shares up in midday training by $1.32, or 4.7 percent, to $29.75.

Lower fourth-quarter costs for materials and production, and for restructuring — down to $103.1 million from $156.2 million in 2007 — helped boost the bottom line. In addition, the 2007 fourth quarter included a $671 million charge for resolving a government civil probe.

Like most of its competitors, Merck is cutting thousands of jobs and slashing other costs as generic competition eats into revenue.

Sales of osteoporosis treatment Fosamax plunged due to generic competition, and revenue from Merck's partnership with Schering-Plough Corp. on cholesterol drugs also fell. Those drugs, Vytorin and Zetia, have been hurt by reports over the past year questioning their effectiveness and safety, and their combined global revenue plunged 26 percent from the year-ago quarter, to $1.1 billion.

Fosamax sales were down 60 percent, to $318 million. Sales of companion blood pressure medicines Cozaar and Hyzaar also were down, just 1 percent, at $881 million, and revenue for Gardasil, a vaccine to prevent cervical cancer and other sexually transmitted diseases, dropped 16 percent to $286 million.

"Gardasil will continue to be a billion-dollar product annually, but we're not talking about the kind of growth that a lot of people had in their expectations," said analyst Steve Brozak of WBB Securities. Brozak said that's because it's not a chronic treatment, and the Food and Drug Administration so far has rejected its use in women between 27 and 45 years old.

Merck said Tuesday it expects to submit more data that the FDA has request said in the fourth quarter.

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Other top vaccines, including Zostavax for shingles and RotaTeq for rotavirus, saw sales increase. Revenue jumped 64 percent to $413 million for diabetes pill Januvia and nearly tripled for a second diabetes drug, Janumet, to $120 million.

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The company said it took a $62 million charge in the fourth quarter for future legal defense costs related to Vioxx, which Merck pulled from the market in September 2004 because the then-blockbuster arthritis pill doubled risk of heart attacks and strokes.

"In 2008 we improved efficiencies, managed through a dramatically changing industry environment and took actions designed to better position Merck for success," Chief Executive Richard T. Clark told analysts during a conference call. "And we did so during a very difficult and unsettling time for the U.S. and global economies."

Clark said Merck has completed a restructuring begun in December 2005 and has slimmed down by 10 percent, from 61,500 employees then to 55,200 at the end of 2008. The company expects to lay off about 5,300 more workers under a new restructuring announced in October.

Without all that cutting, Brozak said, "We would probably be seeing some very different numbers" in the financial results.

Clark also noted that Merck expects to have nine new late-stage studies start this year, on drugs for conditions including asthma, hardening of the arteries, migraines and Type 2 diabetes and a vaccine against staph infections.

Merck reaffirmed its 2009 financial forecasts, saying it expects earnings per share of $2.95 to $3.17, excluding up to about 20 cents' worth of one-time items, and revenue between $23.7 million and $24.2 billion.

For all of 2008, Merck reported net income of $7.8 billion, or $3.64 per share. That was up 138 percent from income of $3.28 billion, or $1.49 per share, in 2007 — results that were weighed down by the charge to settle roughly 50,000 Vioxx product liability suits. Merck also reported a $2.2 billion one-time gain earlier in 2007 from opting to continue its partnership with British drugmaker AstraZeneca LP.

Revenue for the full year totaled $23.85 billion, down 1 percent from $24.2 billion in 2007.