Good news, bad news for Merck

Drugmaker's raising earnings guidance and report of 1,000 Vioxx cases being tossed countered by FDA advisory vote against painkiller.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Merck & Co. raised its earnings guidance for the most recent quarter Thursday, just hours after a government advisory panel urged rejection of its new painkiller and in the wake of a report that 1,000 Vioxx lawsuits may be thrown out.

The Whitehouse Station, N.J., drugmaker - the nation's fourth biggest - raised guidance for first-quarter earnings per share to 84 cents, excluding restructuring charges related to plant closures and layoffs, and 78 cents including the charges.

The company had previously provided first-quarter guidance of 63 to 67 cents per share excluding restructuring charges, with 58 to 64 cents including charges.

Merck's raised full-year 2007 earnings guidance to a range of $2.75 to $2.85 per share excluding restructuring charges, and $2.60 to $2.75 including charges. The company had previously announced 2007 guidance of $2.55 to $2.65 excluding restructuring charges, and $2.40 to $2.55 including charges.

The raised guidance came soon after an advisory committee for the Food and Drug Administration rejected Arcoxia, Merck's new arthritis painkiller, in a one-sided vote Thursday.

The panel of experts voted 20-1 against Arcoxia, according to the FDA. This is a nonbinding vote that will be taken as advice at a later date, when the FDA decides whether to approve the drug.

"We are disappointed in today's outcome, and we continue to believe that Arcoxia has the potential to become a valuable treatment option for many Americans suffering from osteoarthritis," said Merck spokesman Chris Loder to CNNMoney.com, referring to the most common type of arthritis.

Loder noted that Merck is "committed to working with the FDA" but did not detail any further plans regarding Arcoxia and the U.S. market.

"We will continue to market Arcoxia outside the U.S., where it has been approved for a broad range of applications, including osteoarthritis," said Loder, adding that Arcoxia is available in 63 countries in Asia, Latin America and Europe, including the United Kingdom and Germany.

Dr. Robert Meyer, director of the FDA office of drug evaluation, told reporters in a press call that panelists had concerns about the "overall cardiovascular safety of the drug" and with all drugs in the Cox-2 inhibitor class.

Merck's (up $0.71 to $46.36, Charts) stock price was down 1.5 percent prior to the vote, which occurred shortly before the market close. The price dipped slightly in after-hours trading.

Arcoxia sales totaled $265 million in 2006, a relatively small slice of Merck's total sales of $22.6 billion.

Even if Merck had managed to get Arcoxia approved by the FDA, it might not have resulted in a big earnings spike for the company. In an interview on April 10, Les Funtleyder, analyst for Miller Tabak, said FDA approval of Arcoxia would have added a mere $50 million in annual sales for Merck because the drug's cardiovascular risks would have made it off-limits to many Americans.

The drug is a member of the same class - Cox-2 inhibitors - as Vioxx, a $2.5 billion-a-year blockbuster that Merck withdrew from the market in 2004 because of a study linking the drug to heart attacks and strokes.

More than 20,000 lawsuits have been filed against Merck by former Vioxx patients and their families. Merck has vowed to fight all cases in court one by one, losing five so far but winning 10.

But Merck could be in for a big Vioxx court victory Monday. The Wall Street Journal reported that a Texas judge is expected to throw out a group of 1,000 Vioxx lawsuit cases. According to the report, the judge is making the decision based on a recently finalized FDA rule.

"I can't confirm or deny the report, but we will analyze it when we see it," said Kent Jarrell, spokesman for Merck's outside counsel, to CNNMoney.com.

The FDA lost credibility after approving Vioxx, which many critics see as a monumental mistake because the drug has been blamed for fatal heart attacks. Merck denies these claims.

"Fool me once - Vioxx, shame on you," said an FDA panelist following the vote. "Fool me twice - Arcoxia, shame on me."

In 2005, the FDA asked Pfizer (up $0.42 to $26.46, Charts) to remove its Cox-2 blockbuster Bextra from the market. But Pfizer was allowed to keep its Cox-2 drug Celebrex on the market, making it the only drug of that class available to Americans. Celebrex is a popular drug, totaling $2 billion in 2006 sales, and Pfizer recently resumed advertising it directly to consumers.

Merck trails Pfizer, Johnson & Johnson (up $0.03 to $61.92, Charts) and Abbott Laboratories (up $0.41 to $57.41, Charts) among U.S. drugmakers.

Funtleyder does not own shares of Merck stock, and Miller Tabak does not conduct business with the company.

Judgment day for new Merck painkiller

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.