Merck: Health care overhaul to cost drugmaker $320M this year in rebates, lost tax benefit

Merck: Health care overhaul to cost $320M in 2010

TRENTON, N.J. — Drugmaker Merck & Co. said Friday the federal health care overhaul will reduce its revenue by about $170 million this year, and by roughly double that amount next year.

Merck also expects to take a non-cash charge of about $150 million for the first quarter, due to elimination of the tax benefit for providing prescription drug coverage to company retirees.

Merck said rebates to the Medicaid program, required in the recently passed federal health care legislation, will reduce its revenue by about $35 million in the first quarter and $170 million for all of 2010. In 2011, the company said it expects “unfavorable sales impact” of about $300 million to $350 million.

Despite those costs, Merck said that it is still aiming to produce compound annual growth in the high single digits excluding one-time items through 2013, compared with its 2009 results.

Merck, based in Whitehouse Station, N.J., is the maker of asthma and allergy drug Singulair and cholesterol drugs Vytorin and Zetia. It is slated to report its first-quarter results on May 4.

Merck shares, which had been trading up Friday before the announcement rose $1.41, or 4.2 percent, at $35.18 in early afternoon trading.

Numerous other major U.S. companies have been taking large charges for the lost prescription drug tax benefit as the first-quarter corporate earnings season proceeds.

Johnson & Johnson, a giant maker of medical devices and prescription and over-the-counter drugs, on Tuesday said that government rebates under the health care overhaul would reduce its 2010 revenue up to $500 million and its profit by about $300 million, or 10 cents per share. J&J did not take a charge related to retiree prescription benefits, however.