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Earnings report

Charges hurt drugmakers' results

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

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

"There are some signs of encouragement with some of the companies," said Robert Hazlett, an analyst with SunTrust Robinson Humphrey. "The group in general looks reasonably inexpensive at this point. We're encouraging investors to consider this group."

Independent analyst Hemant Shah of HKS & Co. said it is "a pretty challenging environment" for drugmakers dealing with, or about to face, loss of patent protection and lost sales for their top drugs, particularly Merck and Schering-Plough.

"In my opinion, another cycle of consolidation is inevitable," with companies not producing enough new drugs to make up for lost revenues, Shah said.

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

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

Schering-Plough Corp. posted a loss, citing a charge for reserves to resolve litigation related to questionable marketing practices in past years.

[Last modified July 22, 2005, 00:32:15]