Tax gains lift Merck, but sales disappoint

Merck & Co Inc reported a higher-than-expected third-quarter profit, as a favorable tax rate and lower merger costs helped offset plunging sales of its former flagship product, Singulair, an asthma drug that began facing cheaper generics in August.

But overall company sales came in slightly below Wall Street expectations, as Singulair's decline outpaced already grim predictions for it.

Merck, the No. 2 U.S. drugmaker, said on Friday it earned $1.73 billion, or 56 cents per share, compared with $1.69 billion, or 55 cents per share, a year earlier.

Excluding special items, Merck earned 95 cents per share. Analysts, on average, expected 92 cents.

The better-than-expected profit was largely due to the favorable impact of an overseas tax settlement as well as realization of foreign tax benefits, Merck said.

Jefferies & Co analyst Jeffrey Holford had predicted a tax rate of 26 percent, but it came in at 20.3 percent. He called the profit beat "low quality" because it was mostly due to the one-time tax gains.

"Gross margins were also weaker than expected," Holford said, and noted that Singulair sales were about $75 million below what he had expected.

Merck spokesman Ron Rogers said the tax gains are not expected to carry over into the fourth quarter and that the drugmaker continues to expect a full-year tax rate of about 25 percent.

Global company revenue fell 4 percent to $11.49 billion in the quarter, below Wall Street expectations of $11.57 billion.

Merck tightened its full-year profit forecast to between $3.78 and $3.82 per share, from its earlier view of $3.75 to $3.85 per share.

Sales of Singulair tumbled 55 percent to $602 million. But a number of its newer products - including treatments for diabetes, hepatitis C and HIV - generated double-digit sales gains that helped cushion Singulair's free fall.

And revenue from Gardasil, the company's vaccine against cervical cancer, jumped 31 percent to $581 million.

But Merck will need to launch new drugs to withstand looming generic competition for other important medicines. Its Maxalt migraine drug, with $600 million in annual sales, goes generic in December, followed next year by its Temodar brain cancer medicine, which has near-blockbuster sales of $900 million.

Over the next 18 months, the company aims to seek six drug approvals, including marketing applications for new types of therapies for insomnia and osteoporosis.