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Merck reaffirms 2007 profit outlook

The drugmaker Merck & Co. on Tuesday offered profit forecasts for this year and next that fell short of Wall Street expectations, sending its shares lower.
/ Source: The Associated Press

The drugmaker Merck & Co. on Tuesday offered profit forecasts for this year and next that fell short of Wall Street expectations, sending its shares lower.

The projections came less than a month after Merck announced it would pay $4.85 billion to settle tens of thousands of lawsuits stemming from its painkiller Vioxx, which it pulled from the market in 2004.

While it expects higher sales of its HPV vaccine Gardasil, diabetes treatment Januvia and its allergy treatment Singulair next year, Merck said generic competition will drive down sales of another top-seller, Fosamax osteoporosis treatment.

A cost-cutting plan announced in 2005 is on track, the company said. Merck has already cut about 6,000 jobs under the plan and it said Tuesday it reach its target of eliminating 7,000 positions by the end of 2008.

On Tuesday, the Whitehouse Station-based company reaffirmed its outlook for 2007 profit excluding items of between $3.08 and $3.14 per share.

Including a the Vioxx settlement, legal and restructuring costs and other items, Merck expects its profit to range between $1.45 and $1.51 per share for the full year.

In 2008, the company expects profit between $3.96 and $4.06 per share. Excluding one-time items, earnings per share are projected to range between $3.28 and $3.38.

Both annual forecasts were a penny a share below Wall Street expectations.

Analysts polled by Thomson Financial have forecast 2007 profit of $3.15 per share and 2008 profit of $3.39 per share. Those estimates typically exclude one-time items.

Goldman Sachs analyst James Kelly, in a note to investors, called the 2008 guidance “good but not great.”

He said Merck “executed exceptionally well in 2006-2007, with major product launches in pharmaceuticals and vaccines.” He noted several challenges in 2008, including generic competition to Fosamax.

Richard T. Clark, chairman, president and CEO, said Merck expects “to deliver compound annual double-digit earnings growth, excluding certain items, by 2010” from its 2005 base.

Clark said that the Vioxx settlement, announced Nov. 9, removes “a significant amount of uncertainty related to legal concerns.”

The settlement, one of the largest involving drug litigation, would end 45,000 to 50,000 lawsuits from U.S. Vioxx users who claimed the blockbuster caused their heart attack or stroke.

Merck pulled Vioxx from the market in 2004 after its researchers determined the arthritis treatment, then pulling in about $2.5 billion a year, doubled risk of heart attacks and strokes.

Merck’s stock has risen since announcing the Vioxx settlement and has traded in recent days near its 52-week high of $60.49.

Merck’s profit for the first nine months of the year rose to $4.9 billion, or $2.24 per share, up 24 percent from $3.96 billion, or $1.81 per share, for the same period in 2006. Nine-month sales rose 8 percent to $17.95 billion.

While sales of Gardasil and Januvia are expected to rise next year, sales of Fosamax are projected to fall to $1.1 billion to $1.4 billion in 2008 from a range of $2.9 billion to $3.1 billion in 2007 due to generic competition.

“Despite the loss of marketing exclusivity for Fosamax in the United States in February 2008, the company anticipates solid earnings growth in 2008,” said Peter N. Kellogg, chief financial officer.

Merck anticipates that its top-selling product will be asthma and allergy treatment Singulair, expected to have worldwide sales of up to $4.3 billion in 2007 and up to $4.8 billion in 2008.