Merck Lowers Estimate, Cites Vioxx Sales

Merck & Co. Inc., the world's No. 3 drug maker, on Friday warned its full-year earnings would miss previous projections, hurt by slower-than-expected sales of its flagship arthritis drug Vioxx and the negative impact of foreign exchange rates. 

Merck estimated earnings at $3.12 to $3.18 per share, down from a previous estimate of $3.15 to $3.25. 

Analysts' estimates ranged from $3.10 to $3.25 a share, with a consensus of $3.20, according to data compiled by research firm Thomson Financial/First Call. 

Merck projected second-quarter earnings of 77 to 79 cents per share, compared with the First Call consensus estimate of 81 cents. 

The company's shares fell 8.15 percent, or $6.07, to $68.40 in early morning trading, and were the biggest percentage loser on the New York Stock Exchange. 

Merck also said weak foreign currencies, which lower the value of goods sold outside the United States, were still hurting its overall business as the dollar remains strong. 

``I'm not so much surprised in the Vioxx number as I am about their change in earnings guidance,'' said Richard Evans, an analyst at Sanford Bernstein. 

``The Vioxx forecast is not a surprise. The sales curve on arthritis drugs is essentially six months of offense and 13 years of defense. There's very fast uptake, a very quick peak, and then it's very flat, and that's what we've always expected,'' Evans said. 

``The fact that they attributed it to Vioxx is a little disconcerting because I think Vioxx's sales trajectory is exactly what someone familiar with the arthritis market would expect, so it suggests we have to look a little deeper than just Vioxx and foreign exchange,'' he added. 

Vioxx Demand Weakening? 

Concerns on Vioxx sales were first raised in April when the company's first-quarter results revealed what many on Wall Street viewed as disappointing sales of the arthritis and pain treatment. 

At the time, Merck tried to quell fears Vioxx sales would miss year-end goals, saying quarterly U.S. sales of the drug were hurt because wholesalers needed to buy less after stockpiling ahead of a November price increase. 

The company on Friday provided 2001 sales guidance for its five main drugs -- including Vioxx -- which Merck hopes can drive revenue growth as the firm attempts to compensate for a recent flurry of patent expirations on other key drugs, such as Mevacor for cholesterol and Pepcid for heartburn and ulcers. 

The company projected Vioxx sales of between $3 billion and $3.5 billion; cholesterol drug Zocor between $5.8 billion and $6.2 billion; Fosamax for osteoporosis in a range of $1.5 billion and $1.7 billion; hypertension treatments Cozaar/Hyzaar between $1.8 billion and $2 billion and asthma drug Singulair at between $1 billion and $1.2 billion. 

Merck said Vioxx sales may fall short of the top of the given range because the class of drugs -- called COX-2 inhibitors -- that Vioxx helped pioneer is not penetrating the market for analgesics and arthritis as quickly as expected. 

That class of drugs includes Pharmacia Corp.'s blockbuster Celebrex. 

Merck said marketing and administrative expense would grow in the low single-digit percentage range for the year, while research and development costs are expected to be $2.6 billion for 2001. 

Industry leader Pfizer Inc. has pledged to spend about $5 billion on research and development in 2001. 

Merck said sales from its Merck-Medco unit, which manages prescriptions for pharmacies and insurers, would reach between $25 billion and $26 billion in 2001. That compares with sales of $20.1 billion for the unit in 2000. 

But analysts have said that Merck-Medco has low margins -- the difference between revenues and the costs needed to procure those sales -- and therefore do not add significantly to earnings. 

Merck estimated that its gross margin would be about 39 percent for the year. The company had previously stated it foresaw 2001 margins at about 4 percentage points lower than the 44.4 percent it showed in 2000, said a Merck spokesman.