Drug Makers Stumble on One-Time Charges

Large one-time charges hurt the bottom lines -- and lowered share prices -- of three major drug makers Thursday, slashing second-quarter net income at struggling Merck & Co. and triggering losses at Eli Lilly & Co. and Schering-Plough Corp.

But excluding one-time items stemming from legal problems and a big tax bill, Merck and Lilly managed to meet Wall Street expectations. Schering-Plough surpassed analysts’ forecast by 8 cents a share.

“There are some signs of encouragement with some of the companies,” said Robert Hazlett, an analyst at SunTrust Robinson Humphrey. “The group in general looks reasonably inexpensive at this point.”

Earlier in the week, three other U.S. pharmaceutical companies -- Pfizer Inc., Wyeth and Johnson & Johnson -- reported higher net income and sales, generally by 10% or more.

Independent analyst Hemant Shah of HKS & Co. said it was still “a pretty challenging environment” for drug makers dealing with, or about to face, loss of patent protection and subsequent lost sales for their top drugs, particularly Merck and Schering-Plough.

Merck, wounded by its September recall of blockbuster painkiller Vioxx over safety questions, posted its second straight quarter with significantly lower revenue, down 9% this time.

Its net income plunged 59% to $720.6 million, or 33 cents a share, because of lost revenue from Vioxx, slumping sales of its top drug, Zocor, and a $740-million charge for repatriating about $15 billion in foreign profit.

A year ago, net income was $1.77 billion, or 79 cents a share. Excluding one-time items, Whitehouse Station, N.J.-based Merck’s operating income was $1.36 billion, or 62 cents a share.

Revenue totaled $5.47 billion, down from $6.02 billion last year.

Eli Lilly posted a quarterly loss of $252 million, or 23 cents a share, thanks to a charge of $1.07 billion, or 90 cents, for a product liability settlement and related costs involving Zyprexa, its top-selling anti-psychotic treatment.

A year earlier, the Indianapolis company had a profit of $656.9 million, or 60 cents a share. Excluding the settlement and related charges, Lilly posted earnings of $728 million, or 67 cents.

Schering-Plough posted a second-quarter loss of $70 million, or 5 cents a share, citing a charge of $259 million, or 18 cents, for reserves to resolve litigation related to questionable marketing practices in past years.

Excluding that, the Kenilworth, N.J., company’s operating income would have been 13 cents a share, 8 cents better than Wall Street expected. In the same quarter of 2004, the allergy and hepatitis drug maker posted a loss of $65 million, or 4 cents a share.

But revenue surged 18% to $2.5 billion as sales of cancer drug Temodar, arthritis drug Remicade and ovarian cancer drug Caelyx all grew by 30% or more.