GSK, Merck post Q4 losses on legal, R&D charges

Two Big Pharma companies, two earnings reports, two losses, and two big charges against earnings. This is the story of GlaxoSmithKline ($GSK) and Merck ($MRK), which both released their fourth-quarter and full 2010 numbers today.

GSK said its net loss totaled £690 million ($1.12 billion) in the three months ended Dec. 31, compared with a profit of £1.63 billion a year earlier, the Wall Street Journal notes. GSK recently disclosed it's booking a $3.4 billion charge in the fourth quarter to cover Avandia litigation and a potential marketing settlement with the Justice Department. That's on top of $2.3 billion in the second quarter. And it brings the 2010 legal charges total to more than $6 billion. Meanwhile, Merck's $500 million loss for the period came on the back of a $1.7 billion R&D charge-off on its blood thinner vorapaxar.

GSK saw Q4 sales drop 11 percent to about $11.6 billion, hit by new generic competition for the herpes drug Valtrex and further declines in sales of the diabetes pill Avandia, which has been withdrawn in Europe and severely restricted in the U.S. Merck's sales rose 20 percent to $12.1 billion on a full-quarter's worth of sales from Schering-Plough legacy products (that merger closed in November 2009), plus strong performance of the allergy drugs Singulair and Nasonex, and diabetes drugs Januvia and Janumet.

Executives' crystal balls showed different pictures, too. GSK chief Andrew Witty announced a share buyback program, a move that analysts interpreted as confirmation that the company has turned the page on its legal woes. Plus, the company has already absorbed most of its patent expirations. "These are clear signals," Witty said on the earnings call (as quoted by Bloomberg). "We're determined this company will be a winner in the sector. We're determined our shareholders get returns."

Merck CEO Kenneth Frazier (photo) lamented the setback on vorapaxar; when safety signals prompted the company to pull stroke patients out of one trial, that "reduced expectations" for the drug, he said. Investors had expected that drug to become a major blockbuster, the Wall Street Journal notes. And the company pulled back on its growth forecast through 2013. But that pull-back actually is a demonstration of faith: Merck could have met the earlier forecasts by cutting costs further, but the company prefers to focus on "longer-term growth prospects" instead, Frazier said.

GSK doesn't offer sales forecasts, so there's no way of knowing whether its 2011 expectations would have been as cautious as Merck's, or whether it would have cut longer-term growth expectations. And the future is far from sure for any company.

- see Merck's statement
- get GSK's announcement
- read the full GSK investor report
- check out the Reuters news
- read the WSJ piece
- see the MarketWatch story
- get more from the WSJ