Merck Stays Conservative

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You would think a company that just settled a multibillion-dollar lawsuit would be interested in going out on a limb, but Merck's (NYSE: MRK) 2008 guidance released yesterday was just Merck being the same old conservative Merck.

Earnings per share, excluding extras, are expected to be in the $3.08 to $3.14 range for 2007 and $3.28 to $3.38 for 2008. Using the middle of the ranges for both years, that's a decent, but certainly not stellar, 7% growth rate.

This time last year, the company was projecting non-GAAP earnings per share in 2007 between $2.51 and $2.59. It looks as though it should blow that projection out of the water, so it's probably a decent guess that the company is also being conservative with its 2008 estimate.

It's not as if Merck won't have issues in 2008. The company will lose patent protection on three drugs, including Fosamax -- its second best seller in the U.S. But expanding sales of its human papillomavirus vaccine GARDASIL, diabetes drugs JANUVIA and JANUMET, and HIV drug ISENTRESS should make up for the lost revenues from generic competition.

Merck's vaccine sales will see a slowdown after a banner 2007, where global sales are expected to more than double. In 2008, Merck is expecting just a 14% increase in global sales as GARDASIL runs into competition from GlaxoSmithKline's (NYSE: GSK) Cervarix. Sales of GARDASIL could pick up again in 2009, as it should have approval for its use in older women by then.

Revenue from its equity partnerships with the likes of AstraZeneca (NYSE: AZN), Schering-Plough (NYSE: SGP), Sanofi-Aventis (NYSE: SNY), and Johnson & Johnson (NYSE: JNJ) is expected to increase 9% in 2008. Given the blockbuster double-digit increases the Schering partnership has seen recently, I have a feeling the others are bringing down the average.

Only time will tell whether Merck is being cautious or not, but given its previous track record, I think it's safe not to put too much faith in its estimates.