NEW YORK (Reuters) - Merck and Co (MRK.N) reported a fourth-quarter loss on Wednesday after legal settlement costs and sales that disappointed investors, sending shares down almost 3 percent.
Although the earnings before the charges beat Wall Street forecasts, analysts said cost cuts and lower taxes were more responsible for the better-than-expected results. Of particular concern was the performance of Gardasil, its vaccine to prevent cervical cancer.
Merck's sales rose 3 percent to $6.24 billion, compared with the Reuters Estimates forecast of $6.28 billion, but would have fallen 1 percent if not favorable foreign exchange factors.
"It looks to me that the (earnings) beat is more a cost-containment issue than a top-line beat," said Damien Conover, an analyst at Morningstar.
Analysts said the most favorable aspect of Merck's earnings report was that Merck did not cut its 2008 profit forecast despite mixed trial results announced earlier this month for cholesterol fighter Vytorin. Merck co-markets the drug with Schering-Plough Corp (SGP.N).
The so-called Enhance trial showed Vytorin did not reduce fatty plaque in arteries, even though it sharply reduced levels of "bad" LDL cholesterol. The results sparked questions about whether the cost of Vytorin and its sister drug Zetia were justified.
Combined quarterly sales of Vytorin and Zetia grew 34 percent to $1.5 billion, and reached $5.2 billion for the full year.
Merck shares have declined some 20 percent since results of the Vytorin trial became public, after having been delayed since the trial concluded in April 2006. Vytorin combines Zetia with simvastatin, a relatively inexpensive generic cholesterol drug.
Merck said it has become aware of or has been served with about 50 civil class-action lawsuits since mid-January alleging consumer fraud in connection with the promotion of Vytorin and Zetia.
Vytorin and Zetia prescriptions have fallen since the Enhance trial results, even as Merck girds for U.S. generic competition beginning next week for its blockbuster osteoporosis drug Fosamax.
Deutsche Bank analyst Barbara Ryan said Vytorin sales could fall 10 percent this year from what she termed overly negative interpretations of the trial data, but Ryan predicted surprisingly high sales of other Merck products would offset any Vytorin declines.
Merck said it lost $1.63 billion, or 75 cents per share, compared with a profit of $474 million, or 22 cents per share, in the year-earlier period when Merck took two special charges.
Excluding special items, Merck said it earned 80 cents per share. Analysts, on average, expected 73 cents per share, according to Reuters Estimates.
Special items included a $4.85 billion charge related to a legal settlement for its withdrawn Vioxx arthritis drug and combined charges of $945 million related to restructuring and government civil investigations.
The Vioxx settlement offer, announced in November, calls for $4 billion to be divided among former users of Vioxx who said the drug caused them to have heart attacks, and $850 million for those who suffered strokes. More than 57,000 plaintiffs have registered to participate in the settlement.
Gardasil posted $339 million in sales and helped drive Merck's total revenue from vaccines to $1.1 billion.
But Gardasil sales were well below predictions, including the $451 million forecast of Morgan Stanley analyst Jami Rubin. She said "seasonality issues" had crimped the product's sales growth and maintained her "overweight" rating on the drugmaker.
Merck shares closed down $1.32, or 2.75 percent, at $46.69 on the New York Stock Exchange. The American Stock Exchange Pharmaceutical Index (.DRG) declined 1.5 percent.
Also on Wednesday, Swiss drugmaker Roche Holding AG (ROG.VX) on Wednesday beat forecasts with a 25 percent rise in 2007 net profit but gave a cautious outlook, saying it would spend more on research this year as it accelerates drug development.
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