updated 1/31/2006 9:18:13 AM ET 2006-01-31T14:18:13

Merck & Co. said Tuesday its profit edged up 2 percent in the fourth quarter on flat sales as the drug company announced it set aside an additional $295 million for legal defense costs related to its withdrawn painkiller Vioxx.

Merck said it earned $1.12 billion, or 51 cents a share, for the October-December quarter compared to $1.1 billion, or 50 cents a share, in the year-ago period. Revenue was nearly flat at $5.77 billion versus $5.75 billion a year ago.

Excluding charges for restructuring and the legal defense fund increase and taxes associated with repatriating foreign profits, Merck earned 64 cents a share in the latest quarter. That beat by two cents the consensus estimate of analysts surveyed by Thomson Financial.

During the fourth quarter, Merck announced a restructuring plan designed to save between $4.5 billion and $5 billion by 2010. The plan includes eliminating 7,000 jobs and Merck said that as of the end of 2005, it had cut 1,100 positions.

Sales of Zocor, a cholesterol-lowering treatment, fell 18 percent to $1.1 billion in the quarter. The drug will lose patent protection in June. Other products fared better including Zetia and Vytorin, the cholesterol drugs Merck sells in partnership with Schering-Plough Corp. Zetia sales grew 19 percent to $391 million while Vytorin revenues reached $355 million.

Merck withdrew Vioxx from the market in September 2004 after a study showed it increased patients’ risk of heart attacks and strokes. On Tuesday, Merck announced the number of lawsuits filed against it rose to about 9,650 from about 9,200.

The charge announced Tuesday brings the total amount Merck has earmarked for legal costs to $970 million. However, Merck announced it spent $285 million on defenses costs last year, leaving it with $685 million, which it believes will last through 2007.

Merck reaffirmed it expects to earn between $2.28 a share and $2.36 a share, excluding charges, this year. The company also said it will deliver double-digit earnings growth, excluding restructuring charges, over the next three to five years.

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