Merck & Co accepts USD 670m Medicaid charge

US-based Merck & Co has accepted a USD 670m charge to settle legal disputes with a number of US states over alleged overcharging for the provision of some of its drugs to Medicaid.

Vioxx (rofecoxib) litigation costs and the Medicaid charge are forecast to trigger a USD 3.6bn reduction in Merck & Co's net earnings for FY07. The impact of the same items in 2008, however, is expected to result in a positive contribution to net earnings of USD 1.5bn.

Merck & Co's FY07 and FY08 forecasts reveal that most of the serious long-term litigation threats to the company are nearing resolution and their impact has been included.

Generics competition will undermine Merck & Co's top-line growth at a time that immediate litigation threats are finally put aside. However, the company says it will see sustained growth from cervical cancer vaccine Gardasil, diabetes treatment Januvia (sitagliptin) and Asthma drug Singulair (montelukast).

Savings from restructuring are also expected to boost the bottom line. Merck & Co is targeting pre-tax savings of USD 4.5-5bn from 2006 through 2010, of which USD 2bn will be through the implementation of a manufacturing supply strategy.

The company will meet its target of cutting 7,000 jobs by the end of 2008. It already axed 6,000 positions by the end of September 2007.

The savings and projected sales growth should enable Merck & Co to return its gross margin, starting in 2008, to levels consistent with those seen prior to the loss of US patent exclusivity for Zocor (simvastatin).