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Merck Posts Higher Profit, Lower Sales

Merck & Co. (MRK) Monday posted a 7 percent rise in third-quarter earnings, as lower costs offset the withdrawal of arthritis drug Vioxx and sharply lower demand for its Zocor (search) cholesterol fighter.

Merck, along with marketing partner Schering-Plough Corp. (SPG), got a boost in the period from new cholesterol medicines Vytorin and Zetia. The strong performance fueled a threefold rise in earnings at Schering-Plough, and lifted shares of both drugmakers in early trading.

Net income at Merck, which faces thousands of lawsuits over the Vioxx withdrawal last year, rose to $1.42 billion, or 65 cents per share, from $1.33 billion, or 60 cents per share, in the 2004 quarter. Analysts, on average, expected 62 cents per share, according to Reuters Estimates.

Total sales fell 2 percent for the quarter, to $5.42 billion, which reflects a decrease of 3 percent related to the Vioxx withdrawal, offset by other revenue growth of 1 percent.

"While the company beat earnings (expectations), sale for several key franchises lagged our estimates," wrote Tim Anderson, an analyst at Prudential Securities.

Global sales of Merck's biggest product, Zocor, slumped 14 percent to $1.05 billion. The drug's U.S. revenue fell 10 percent amid competition with the more-potent new drug Vytorin sold by Merck and Schering-Plough Corp. Zocor lost almost a quarter of its sales overseas, where it is facing cheaper generics.

Sales of hypertension drug Cozaar rose 6 percent, to $751 million, while those of asthma drug Singulair jumped 11 percent to $692 million.

But sales of osteoporosis drug Fosamax failed to grow, hurt by competition from Procter & Gamble Co's (PG) Actonel and a new treatment, Boniva, sold by Roche Holding AG and GlaxoSmithKline .

Combined sales of two cholesterol fighters Merck sells through a joint venture with Schering-Plough Corp., Zetia and Vytorin, jumped 83 percent, to $630 million. Zetia blocks absorption of cholesterol in the intestines.

Vytorin combines the drug in the same tablet with Zocor, which cuts the body's production of "bad" LDL cholesterol.

Net profit at Schering-Plough rose to $43 million, or 3 cents per share, from $14 million, or 1 cent per share, a year earlier, marking the third consecutive quarter of higher earnings before special items.

Schering-Plough Chief Executive Fred Hassan, who was brought on in 2003 to help turn around the company, said the focus is shifting to a growth strategy now that the turnaround is well under way.

Third-quarter sales jumped 15 percent to $2.3 billion, helped by demand for hepatitis drugs Peg-Intron and ribavirin, arthritis treatment Remicade, and Temodar for brain cancer. One-third of the increase stemmed from sales of two antibiotics and other drugs for Germany's Bayer AG under a partnership begun last October.

"Schering-Plough had good results, hitting on all the key elements," said Deutsche Bank analyst Barbara Ryan, who cited strong overall revenue growth and improving profit margins.

She said Schering-Plough's long-awaited recovery is now a reality, thanks largely to growing demand for Vytorin, which was launched in the United States in the year-ago quarter.

By contrast, Ryan said many of Merck's drugs had "sloppy" sales and that the drugmaker will need to aggressively cut costs to ensure future profit growth -- something she expects the company to announce at a meeting with investors in December.

Merck shares rose 18 cents to $26.36 on the New York Stock Exchange Monday, while Schering-Plough shares rose 19 cents to $21.30.

Merck's stock has fallen 18.5 percent so far this year, while Schering-Plough is little changed for the year to date, compared with a 3.1 percent decline for the American Stock Exchange Pharmaceutical Index.