NEW YORK (Reuters) -
Merck & Co. Inc., reeling from the recent withdrawal of its Vioxx arthritis drug, on Wednesday said 2005 earnings will decline to levels below Wall Street expectations, the third straight year of lower results.
But Merck (up $0.61 to $28.50, Research) shares rose 2.1 percent on relief the company did not deliver an even weaker forecast, said Robert Hazlett, an analyst with Suntrust Robinson Humphrey. The shares are down 38 percent for the year, by far the worst performance among large drugmakers.
"We had heard some investors were expecting a much worse forecast for next year, and those fears have been allayed," Hazlett said.
The recall of Vioxx has erased the drug's $2.5 billion in annual sales. Merck earnings will also be hurt by generic competition outside the United States for cholesterol fighter Zocor, its top product.
The company projected 2005 earnings of $2.42 to $2.52 a share, shy of the average estimate of $2.58 among analysts polled by Reuters Estimates. The forecast excludes the establishment of reserves for potential Vioxx-related liability.
The forecast represents a slight decline from Merck's 2004 earnings estimate of $2.59 to $2.64 per share, which includes expectations that the Vioxx withdrawal will reduce profit by 50 cents to 55 cents a share.
"I think Merck may be intentionally projecting conservative numbers because they know it will be a bad year," said Sena Lund, an analyst with Cathay Financial LLC.
Lund said earnings in 2006 -- the year Zocor loses its patent protection in the United States, its most important market -- will not look as bad in comparison to 2005 if results next year are weaker than expected.
Merck's profit forecast for 2004 represents a decline of 11 percent from 2003. Profit fell 7 percent in 2003 as earlier safety concerns about Vioxx hurt sales of the drug.
Vioxx was recalled in September, five years after its launch, when a large trial showed long-term use significantly raises the risk of heart attack and stroke.
Merck said Zocor sales could dip as low as $4.1 billion next year, compared with expected 2004 sales of up to $5.1 billion.
Sales of osteoporosis drug Fosamax are expected to rise to as much as $3.6 billion from expected 2004 sales of $3 billion to $3.2 billion. Those of hypertension drug Cozaar are seen rising to as much as $3.2 billion from an expected $2.6 billion to $2.8 billion in 2004.
The company said it expects its 2005 earnings to reflect growth in its newer products, including its recently launched cholesterol drug Vytorin, which Merck co-markets with Schering-Plough.
Merck said profit in the fourth quarter of 2004 will range from 48 cents to 53 cents a share, including the impact of about $700 million to $750 million in lost sales of Vioxx and potential additional costs for the drug's withdrawal.
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