Posted on: Tuesday, July 9, 2002
Drug firm out to bypass scandal
By Julie Appleby
USA Today
Merck is expected to proceed with the twice-delayed IPO of Merck-Medco this week despite the disclosure that the pharmacy-benefits business recorded $12.4 billion in revenue that it never collected.
The drug giant revealed in April that it counted $5 to $20 co-payments made by patients picking up prescriptions at pharmacies from 1999 to 2001 as revenue.
It also deducted the co-payments as an expense, so there was no impact on Merck's bottom line.
Still, the accounting practice boosted revenue. Merck revealed the size of the boost — $12.4 billion — in a Securities and Exchange Commission filing Friday.
News of the filing yesterday sent a shiver through investors already suffering from too much bad accounting news, and Merck shares fell $1.05 to $47.81.
Overall, the concerns about Merck's accounting practices prompted market investors to lock in profits from Friday's big rally. But although similar questions about other companies have triggered massive selloffs in recent weeks, analysts weren't concerned about the session's losses, noting that some retreat is common after a significant advance.
By late afternoon, the Dow Jones industrial average was down 100.17, or 0.7 percent, at 9,279.33, after Friday's 324-point rebound from sharp selling earlier in the week.
Broader stock indicators also dropped, with the most significant losses coming in the technology-focused Nasdaq composite index, which fell 32.52, or 2.3 percent, to 1,415.84.
"We got just a little bit ahead of ourselves on Friday, so to get a little bit of pullback today is normal," said Ralph Acampora, director of technical research, Prudential Securities.
A Wall Street Journal story questioning Merck's accounting practices sent the pharmaceutical company's stock down as investors yet again wondered about the truthfulness of corporate earnings reports.
Merck, which denied any wrongdoing, fell $1.25 to $47.61. Meanwhile, the company's initial public offering of 20 percent of Medco, a subsidiary that manages drug benefits for employers and health insurers, is still expected to go this week, and could price as early as tonight.
The IPO, delayed twice because of unfavorable market conditions, had been expected to raise about $1 billion for Merck.
