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Merck Expects to Beat Earnings Forcast

December 5, 2002

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TRENTON, N.J. (AP) _ Merck & Co., the world’s No. 3 pharmaceutical company, said Thursday it expects earnings to be up sharply in 2003 compared to this year, surpassing Wall Street’s most recent estimates.

The Whitehouse Station-based company said anticipated double-digit growth in its core pharmaceuticals business should bring in earnings per share between $3.40 and $3.47 a share in 2003. However, that figure is based on having a full year’s net income from its prescription benefit management subsidiary, Medco Health Solutions.

The consensus forecast of analysts surveyed by Thomson First Call was for earnings of $3.37 a share for 2003. Merck said earlier this week it expects earnings to be $3.14 a share for 2002, the same level as last year.

In trading on the New York Stock Exchange, Merck shares rose 39 cents to close Thursday at $59.23.

Merck last summer tried to spin off Medco but abandoned the effort, citing poor stock market conditions. The change of heart came shortly after disclosures that Merck had been padding Medco’s revenues by including prescription copayments that patients pay at pharmacies where Medco handles the electronic authorization and payment for their medications.

In a prepared statement issued Thursday, Merck said it still intends to try to complete the Medco spinoff in mid-2003. If so, it would then adjust its 2003 earnings guidance to reflect that change, if needed.

``We are expecting net income for Medco to grow 20 to 25 percent″ next year, investor relations director Mark Stejbach said in a conference call with analysts.

Stejbach also said that recent studies on some key drugs, including Merck’s blockbuster cholesterol-lowering medicine Zocor and a mainstay cardiac drug, Cozaar, showed they could benefit additional groups of patients. Merck will begin promoting those benefits to boost sales.

``Zocor in the U.S. still has good growth prospects because we don’t have the generic exposure that we have (elsewhere),″ Stejbach said.

He said 2003 sales for the cholesterol drug should range from $5.6 billion to $5.9 billion for Zocor. The osteoporosis medication Fosamax is expected to rack up sales next year of $2.6 billion to $2.8 billion; the same amount is expected for Merck’s arthritis/pain drugs Vioxx, and its successor, Arcoxia.

The picture wasn’t quite so rosy for Merck’s ulcer drugs, Prilosec and its successor drug, Nexium. Both were codeveloped with Astra Zeneca under a former joint venture between the two companies, and Merck receives 32 percent of Prilosec revenues and 27 percent of Nexium sales.

While Merck does not disclose sales figures for those two drugs, Stejbach said their revenues have been declining, and the older Prilosec likely will face generic competition sometime in the second quarter of next year.

``We’re assuming a mid-single-digit percentage decline,″ he said.

Meanwhile, the company’s new cholesterol drug Zetia, made under a collaboration with Schering-Plough Corp., was approved by the Food and Drug Administration on Oct. 25 and went on sale a few weeks later. Revenue figures are not yet available, but it is being promoted by sales representatives from each company and the joint venture.

Stejbach noted that the company has worked hard to hold down overhead, which should only rise by the mid-single digits next year, despite expanding the company’s sales staff. Spending on both basic research and late-stage drug development should increase by 10 percent to 12 percent next year.

``We head into next year looking into this next series of launches,″ Stejbach said.

He cited a new drug for chemotherapy-induced vomiting called Emend, plus the introduction of Arcoxia in several countries outside the United States and the launch of asthma drug Singulair for a recently approved use for patients with seasonal hay fever.

Merck is scheduled to provide additional details on prospects for its medications and others in its pipeline during a daylong meeting with analysts next Tuesday.


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