Old Merck on New Drugs

Perhaps it's a difference of expectations, but unlike its cholesterol drug marketing partner Schering-Plough (NYSE: SGP  ) , Merck (NYSE: MRK  ) investors were actually impressed with the company's double-digit sales growth for the third quarter. It looks like the old Merck is back, with new drugs driving sales growth.

Merck experienced a 12% increase in year-over-year sales growth, driven by 17% growth from SINGULAIR and the addition of diabetes drug JANUVIA and cervical cancer vaccine GARDASIL. Sales of GARDASIL increased an impressive 17% from the previous quarter as the company launches the vaccine in more countries. The more doctors that Merck can get to use GARDASIL routinely, the better chance it has of competing well with GlaxoSmithKline's (NYSE: GSK  ) Cervarix, which is on Merck's heels.

After adding a 29% increase in equity income from affiliates -- including its ZETIA and VYTORIN partnership with Schering-Plough -- Merck reported a whopping 63% increase in earnings per share. Of course, reserving $528 million less in VIOXX legal defense costs versus the year-ago quarter helped the bottom line as well. Even with two legal victories in recent months, VIOXX lawsuits will be hanging over Merck's head for some time.

The future looks just as bright as the present for Merck. The Food and Drug Administration's approval of HIV drug ISENTRESS will provide top-line growth starting this quarter, with more robust sales as Merck receives more relaxed labeling indications. Sales of GARDASIL should also continue to increase, especially if data expected this quarter from a clinical trial of middle-aged women is positive. Merck should also see a decision in the first half of next year about its cholesterol drug CORDAPTIVE, which Merck submitted to the FDA in August.