These are troubled times for Merck (NYSE: MRK ) . This morning, the drug maker reported sharply lower fourth-quarter profits, citing restructuring costs, lower sales of a key drug, and a new U.S. wholesaler distribution program among the culprits.
Back in October, Merck announced that it would eliminate 4,400 jobs. By the end of the year, it had whacked 3,200, taking a $195 million charge in the process. The company expects additional restructuring costs in 2004, with total annual cost savings of $250 million to $300 million starting in 2005.
For the quarter, sales of Zocor -- the company's cholesterol drug -- fell 30% to $1.21 billion, hurt by increased competition as well as the loss of patent protection outside the U.S. Sales of arthritis treatment Vioxx, on the other hand, almost doubled to $731 million.
At about 15 times 2004 earnings, Merck looks interesting. The question is how the second-largest U.S. drug maker will replace Zocor's $5 billion in annual sales when the drug comes off patent in 2006. It's a question that looms large in the wake of a series of late-stage failures.
But like rivals Pfizer (NYSE: PFE ) , Johnson & Johnson (NYSE: JNJ ) , Eli Lilly (NYSE: LLY ) , and Abbott Labs (NYSE: ABT ) , Merck has the resources to create its own opportunities. To this end, the company has entered numerous alliances to bolster its pipeline, including a recent alliance with biotech Neurogen (Nasdaq: NRGN ) to develop pain treatments.
Will replacing Zocor's $5 billion in annual sales be easy? No. But for a company of such size and resources, Merck in the mid-40s is tempting. If nothing else, there doesn't seem to be a whole lot of risk baked in at these levels.
Give us your take on the Merck discussion board.
Jeff Hwang can be reached here.
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