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Earnings Preview: Merck to tout pipeline in report

Merck & Co., the world's second-biggest drugmaker by revenue, will focus on progress on its drug pipeline and cost cutting since its November 2009 acquisition of Schering-Plough Corp., when it reports its fourth-quarter results before the stock market opens Thursday. The company, a component of the Dow Jones industrial average, also has a new CEO.

WHAT TO WATCH FOR: Kenneth Frazier, who on Jan. 1 succeeded the retiring Richard Clark as chief executive, is expected to tout several promising drugs with big sales potential and may discuss a couple of recent deals. Clark is remaining with the company as chairman.

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Merck's hepatitis C drug boceprevir recently was granted expedited reviews by regulators in the U.S. and European Union. A ruling from the Food and Drug Administration is expected by summer.

An FDA decision is expected in the second half of 2011 on an extended-release version of Janumet, a popular diabetes pill that combines Merck's Januvia with a more widely used generic diabetes drug, metformin.

Executives of Whitehouse Station, N.J.-based Merck also will discuss recent promising late-stage test results for anacetrapib, for hardening of the arteries. A larger, a late-stage trial is currently enrolling patients and results are not expected until 2015.

The company will discuss vorapaxar, a clot-preventing drug deemed a likely blockbuster until the company in January had to halt one study because of increased bleeding in the brains of patients who'd had strokes. Merck also removed former stroke patients from a second study of the drug, which continues.

Results for 2010 will be the first for a full year since Merck bought Schering-Plough for $41.1 billion. That gave Merck some key experimental drugs, a strong biotech business, consumer health products including Coppertone and an animal health business called Intervet.

Merck plans to combine Intervet with Sanofi-Aventis SA's animal health business into a joint venture called Merial-Intervet, expected to be the world's largest maker of pet and livestock medicines. That deal could close in this quarter.

Merck will give its quarterly update on job cuts and may discuss progress in integrating Schering-Plough.

Analysts likely will ask about the status of arbitration over revenue from two biologic drugs for rheumatoid arthritis and other immune disorders. Schering-Plough has split the revenue with Johnson & Johnson, which argues it should now get all the money since control of Schering-Plough has changed. Final hearings in the case were held in December.

Merck executives likely will discuss two recent deals.

In December, Merck said it will buy insulin developer SmartCells Inc., a deal that could make Merck a bigger player in the lucrative and fast-growing diabetes treatment market. Privately held SmartCells is developing a form of insulin that could lower risk of dangerously low blood sugar and improve overall blood sugar control. Merck jumped into the diabetes field barely four years ago with the launch of Januvia. Combined sales of Januvia and Janumet climbed to nearly $850 million in the third quarter.

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In January, Merck reached a deal with Parexel International Corp. for help developing copies of biologic drugs, which are grown in living cells rather than by combining chemicals. Last year's health overhaul laid the groundwork for approval of such "biosimilars," which Merck said were a priority area when it started Merck BioVentures late in 2008 to make both new and follow-on biologic drugs.

WHY IT MATTERS: Like other drugmakers, Merck's revenue is taking a hit from the weak global economy, generic competition and increased pressure for lower prices from U.S. and European government health programs. It needs the key drugs in its pipeline to get approved and to deliver big sales.

And if Johnson & Johnson wins exclusive rights to Remicade and successor drug Simponi, Merck would lose about $2 billion in annual revenue.

WHAT'S EXPECTED: Analysts surveyed by FactSet forecast earnings per share of 83 cents and sales of $11.55 billion.

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LAST YEAR'S QUARTER: Merck reported earnings of 79 cents per share, excluding $1.56 per share in one-time gains from merger and other accounting items. It had revenue of $10.09 billion, boosted by a few billion dollars in sales from Schering-Plough products.

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