Merck Not Hurt

Despite fears over generic competition, not all of big pharma is taking it on the chin. Shares of Merck (NYSE: MRK  ) jumped more than 8% today after another quarter of double-digit earnings growth.

Sales were up a measly 6% for the second quarter, but this positive growth came despite one of Merck's former top compounds, cholesterol drug Zocor, feeling the sting from generic competition. More than making up the shortfall were 2006 product launches like diabetes compound Januvia and the Gardasil human papillomavirus vaccine, which combined to bring in over $500 million in the quarter.

As a result of the growth of these products and cost-cutting, Merck's net income rose 12%. It also raised its full year non-GAAP earnings guidance to $3.00-$3.10 a share, which would be at least 25% growth over the $2.52 a share it made in 2006.

Not everything is going well for Merck. In the second quarter it had to bump up its reserves related to defending against Vioxx lawsuits another $210 million, and is now facing 45,000 plaintiff groups, up from 27,000 in the second quarter last year.

Merck needs to pull in a strong second half of 2007. Going into 2008 the pharma is going to face even more generic competition on its top products, so it will be highly unlikely next year will be a repeat of 2007 on the financial side of things. Other future blockbusters like Gardasil also have competition from the likes of GlaxoSmithKline (NYSE: GSK  ) on the horizon. Despite these competitive threats and the Vioxx-related lawsuits, nothing can take away from a solid second quarter for Merck.

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GlaxoSmithKline is an Income Investor recommendation.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.