Ahead of its annual investor day next week, Merck & Co has issued a fairly conservative forecast for earnings growth in 2008 despite the good performances being posted by its newer drugs and vaccines.

The New Jersey-based drugs major claimed that 2008 earnings per share, excluding special items, should be in the region of $3.28-$3.38, compared to this year’s anticipated figure of $3.08-$3.14. It added that it “remains on track to deliver long-term double-digit compound annual EPS growth from 2005 to 2010”, excluding items, estimates which are at the lower end of analysts’ forecasts.

In terms of sales, the asthma drug Singulair (montelukast) should rise to $4.6-$4.8 billion, up from $4.1-$4.3 billion this year. While vaccines should bring in $4.8-$5.2 billion, boosted by the cervical cancer jab Gardasil. Singulair and new products such as the diabetes drugs Januvia (sitagliptin) and Janumet (sitagliptin plus metformin), as well as the HIV treatment Isentress (raltegravir), should go some way to offsetting declining sales of Fosomax (alendronate).

The osteoporosis drug is expected to have sales of $2.9-$3.1 billion this year but due to the loss of US patent protection, those figures are set to crash to $1.1-$1.4 billion. Chief financial officer Peter Kellogg noted that total revenues should grow at 4%-6% from 2005 through 2010 and “we can fully support our expanding pipeline with mid-single-digit compound annual growth in research funding over the same period”.

$670 million charge to cover nominal pricing probe
Of the other information that Merck gave out, perhaps the most striking was the disclosure that it will take a pretax charge of $670 million this year in connection with the “anticipated resolution of civil investigations by federal and state authorities relating to past marketing and selling activities, including nominal pricing programs and samples”. This relates to charges of manipulating Medicaid prices whereby firms offer huge discounts to hospital in exchange for guaranteed market share of certain drugs.

On the more positive side, Merck will enjoy a pretax gain of $450 million this year from insurers related to its Vioxx (rofecoxib) legal battles, the vast majority of which would appear to be close to settlement after the firm reached agreement with lawyers recently. Merck is taking a pretax charge of $4.85 billion to cover the proposed settlement.

The firm ended by saying that it remains on track to cut 7,000 positions by the end of 2008, 6,000 of which have been eliminated since its restructuring programme began at the end of 2005. The pretax costs of that restructuring will be approximately $700 million in 2007 and $100 million next year.