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Weak Merck sales overshadow third-quarter cost cuts

By Ransdell Pierson

(Reuters) - Cost cuts enabled Merck & Co to beat third-quarter earnings forecasts but disappointing sales of its Gardasil cervical cancer vaccine and other big products sent its shares about 2 percent lower.

Merck said on Monday it earned $895 million, or 31 cents per share, in the quarter. That compared with $1.12 billion, or 38 cents per share, in the year-earlier period.

Excluding special items, Merck earned 90 cents per share, topping the average analyst forecast of 88 cents per share, according to Thomson Reuters I/B/E/S.

Company sales fell 4 percent to $10.56 billion, below Wall Street expectations of $10.67 billion. Gardasil sales fell 11 percent to $590 million due to lower purchases by U.S. government programs.

Sales of arthritis treatment Remicade rose 5 percent to $604 million, a marked slowdown from the 17 percent growth seen in the prior quarter, with competition in Europe from cheaper "biosimilar" versions of the medicine. And sales of HIV treatment Isentress fell 3 percent to $412 million, due to increasing competition and reduced purchases by wholesalers.

"The foundation with the core franchises is weakening," BMO Capital Markets analyst Alex Arfaei said, as Merck pushes ahead with development of promising new treatments for cancer.

Sanford Bernstein analyst Tim Anderson said company expenses were 6 percent below his expectations, helping to offset the revenue shortfall.

Merck shares fell 1.8 percent to $56.55 on the New York Stock Exchange in late afternoon trading.

Early this month, Merck sold its consumer care business to Germany's Bayer AG for $14.2 billion.

Some analysts have called for Merck to sell off other businesses, including older drugs that have lost U.S. patent protection that are sold in emerging markets.

But company Chief Executive Kenneth Frazier said they generate cash that can be invested in experimental drugs, and would not be divested without careful consideration.

"We will continue to evaluate opportunities as appropriate," he said on a conference call, referring to potential divestitures.

Merck said the U.S. Food and Drug Administration had designated its Keytruda immuno-oncology drug as a potential "breakthrough therapy" for advanced non-small-cell lung cancer, the most common form of lung cancer.

The "breakthrough" designation, given by the FDA to medicines deemed likely to demonstrate "substantial improvement" over existing drugs, assures fast track review by the agency.

Keytruda, approved last month for advanced melanoma, belongs to a new class of drugs that unleash the immune system to fight cancer by blocking a protein known as Programmed Death receptor (PD-1), or a related target PD-L1.

Bristol-Myers Squibb, Roche Holding AG and AstraZeneca Plc are also developing such drugs, and analysts say they could generate more than $30 billion in annual sales by 2025.

Merck narrowed its full-year 2014 profit forecast to between $3.46 and $3.50 per share, from its earlier view of $3.43 to $3.53 per share.

(Reporting by Ransdell Pierson; Editing by Bernadette Baum, Alden Bentley and Richard Chang)