Merck posts 4Q loss due to restructuring charges

Merck & Co. shares tumbled Thursday after it stunned investors by withdrawing its oft-repeated profit forecast for 2013 and giving lower-than-expected guidance for this year. It blamed pricing pressures, troubles with a crucial experimental drug and the need to invest for the future.

The drugmaker posted a $531 million fourth-quarter net loss due to $3.9 billion in charges, but beat anticipated results on strong sales growth from its key drugs and ones acquired along with Schering-Plough Corp. 15 months ago.

Besides big inventory write-offs and restructuring costs from that deal, Merck took a charge of $1.7 billion before taxes to cover diminished prospects for anti-clotting drug vorapaxar, which was seen as a potential blockbuster. The company last month said that due to dangerous increased bleeding in the brains of patients who'd had strokes, it would halt one late-stage study of the drug and remove some patients from a second, continuing study.

Merck shares tumbled 92 cents, or 2.7 percent, to $32.90.

Merck, the world's second-biggest drugmaker behind Pfizer Inc., said pricing pressures from U.S. health care reform and European government health programs have increased and will keep rising, echoing other drugmakers.

Pfizer faces similar price pressures and more severe generic competition but is cutting its 2012 research budget nearly 20 percent and will essentially do more with less.

"Merck may have more confidence in reinvesting in (research and development) than Pfizer," said Les Funtleyder, an analyst and portfolio manager for the Miller Tabak Health Care Transformation fund. "Merck has done better."

Merck, based in Whitehouse Station, N.J., said its fourth-quarter net loss amounted to 17 cents per share. A year earlier, Merck earned $6.49 billion, or $2.35 per share.

Excluding restructuring and other charges totaling $1.05 per share, Merck would have made 88 cents per share.

Schering's products helped boost revenue 20 percent, to $12.1 billion from $10.1 billion. Analysts surveyed by FactSet had forecast earnings per share of 83 cents and sales of $11.55 billion.

The maker of asthma and allergy drug Singulair said it expects 2011 earnings per share of $3.64 to $3.76, excluding about $1.50 worth of one-time items. Analysts were looking for $3.81.

On a conference call, analysts pounded Merck executives with questions about why it was withdrawing the 2013 profit forecast rather than making even more cost cuts.

"The only way to achieve our 2013 target would be through deeper short-term" cost cuts, said new CEO Kenneth Frazier. "Instead, I have decided that investing in the future of the business is the best long-term strategy."

Jefferies International analyst Jeffrey Holford called scrapping the 2013 forecast a "worrying signal with regard to their level of confidence on being able to win the Remicade arbitration."

He referred to Merck's lengthy battle with Johnson & Johnson over Schering-Plough's rights to some sales of the immune disorder drug and successor medicine Simponi. Together, they brought Merck $2.7 billion in 2010. Frazier wouldn't give an update on the arbitration.

"We support investment in R&D and thinking long term, but it seems like they are asking shareholders to absorb all extra expenses rather than finding internal sources," Credit Suisse analyst Catherine Arnold wrote to investors.

Merck has eliminated about 12,000 jobs since acquiring Schering-Plough for $49 billion on Nov. 4, 2009, and it reduced annual spending by more than $2 billion last year. It's on track to reach $3.5 billion in annual savings by the end of 2012.

Frazier said some of that would be poured into the business. That's needed because Merck now has 20 experimental drugs in expensive late-stage testing and is funding promotion of more than 10 new drugs launching in the U.S. or other countries. He said Merck now has the momentum to sustainably boost revenue.

Key growth drivers Singulair, at $1.35 billion, plus diabetes pills Januvia and Janumet and HIV drug Isentress, saw their sales jump a combined 15 percent in the quarter. But total prescription drug revenue dipped 2 percent to $10.58 billion, mainly due to generic competition to former blockbuster blood pressure drugs Cozaar and Hyzaar.

Schering-Plough brought Merck Remicade, a biologic drug business, a strong pipeline and consumer and animal health products. Merck now has 12 medicines with annual sales of about $1 billion or more.

Sales of veterinary medicines rose 7 percent to $815 million, and sales of consumer products such as nonprescription allergy pill Claritin climbed 8 percent to $251 million.

Frazier, a lawyer who had headed Merck's global pharmaceutical business, took over Jan. 1 from Richard Clark, who is retiring but remains chairman of the board.

For all of 2010, Merck reported net income of $861 million, or 28 cents per share. That's down 93 percent from $12.9 billion, or $5.65 per share, in 2009. Revenue rose 68 percent with the addition of Schering-Plough's products, to $45.99 billion.