Merck & Co. posted a 90 percent drop in third-quarter profit, due to large charges for its $41.1 billion acquisition last year of Schering-Plough Corp. and a legal reserve set up because of a federal investigation.
Also, Merck had a one-time gain of $2.8 billion in the year-ago quarter from selling its animal health business to win antitrust approval to buy Schering-Plough.
The world's second-biggest drugmaker by revenue had net income in the quarter of $341.6 million, or 11 cents per share. That's down from $3.42 billion, or $1.61 per share, a year earlier.
One-time charges totaled $2.3 billion after taxes. Those include $1.54 billion in inventory-related accounting adjustments, $384 million for restructuring due to the merger, $64 million in other merger costs and the $950 million legal reserve. Merck, based in Whitehouse Station, N.J., said it's taking the reserve to cover the expected resolution of a previously disclosed probe by the U.S. Attorney's office in Boston related to its practices in marketing its former painkiller Vioxx.
Excluding one-time charges worth 74 cents per share, Merck would have made 85 cents a share. That's 3 cents more than analysts expected.
Merck, which makes Januvia for diabetes and Singulair for asthma and allergies, said its revenue was $11.12 billion, up 84 percent from $6.05 billion in 2009's third-quarter, when it didn't have revenue from Schering-Plough's products such as hepatitis and fertility drugs and consumer products including the Dr. Scholl's foot care line. Merck bought Schering-Plough in November 2009.
Analysts were expecting slightly higher revenue of $11.24 billion.
Looking ahead, the company raised the lower end of its range for full-year earnings per share to $3.31 to $3.39, excluding items. Analysts expects $3.36 per share. Including one-time items, Merck expects a range of 66 cents to 97 cents a share.
"I'm extremely pleased and proud of what we've achieved in such a short time," Chief Executive Richard Clark told analysts during a conference call.
He said the combined company has driven the growth of key products, expanded its geographic reach, advanced what he called a "tremendous late-stage pipeline," reduced its cost structure and integrated its staff and systems. He said Merck is on track to achieve its goal of $3.5 billion in annual savings by the end of 2012.
"While we still have work to do, Merck is well-positioned now and for the future," despite government pressures to hold down prices and tougher standards to get new drugs approved, Clark said.
Clark noted Merck now gets 18 percent of revenue from emerging markets and is aiming to boost that to 25 percent by 2013.
Those markets, including heavily populated countries with a rising middle class such as China, India and Russia, are targeted as a key growth area by most major pharmaceutical companies. That's because growth is leveling off in the United States and in Europe, where governments are pushing for bigger discounts, particularly on expensive drugs.
Sales of prescription drugs totaled $9.7 billion, up from $5.7 billion from just Merck products a year earlier, but down 4 percent from the combined sales of Merck and Schering-Plough products in 2009's third-quarter.
Sales of Schering-Plough's veterinary medicines were up 3.5 percent from a year ago at $687 million. Consumer health products, including nonprescription Claritin allergy pills and the Coppertone sun-care line, were up nearly 3 percent at $291 million.
For the first nine months, Merck said it earned net income of $1.39 billion, or 44 cents per share, down 78 percent from $6.41 billion, or $3.03 per share, in the same time last year. Revenue totaled $33.89 billion, nearly double the $17.3 billion in the first nine months of 2009.