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To: SusieQ1065 who wrote (61481)	7/22/2002 10:12:04 AM
From: 2MAR$	Respond to of 208838

FRANKFURT, July 19 (Reuters) - Germany's Merck KGaA <MRCG.F> is expected on Tuesday to post sharply lower profits for the second quarter, the first full period its key diabetes drug Glucophage has faced competition from cheaper generic rivals. Sixteen analysts polled by Reuters forecast second-quarter operating profit in a range of 106.3-178 million euros at an average of 143.9 million euros ($145.2 million), or 42 percent below the year-earlier level. Sales were seen down three percent at 1.890 billion euros. Glucophage began facing cheaper copycat rivals in the United States late last January, and analysts say second-quarter sales figures are vital to determine how badly the bottom has fallen out of the company's top seller. Some analysts are forecasting a worst-case scenario in which Merck's U.S. marketing partner for Glucophage, Bristol-Myers Squibb Co. <BMY.N>, receives no shipments in the second quarter after the U.S. firm said last spring it had overstocked in 2001. Merck, 74-percent owned by the descendants of founder Emmanuel Merck, said in April that in a worst-case scenario, 2002 operating profit might be down a third from last year's 877 million euros. At best, the fall would be 20 percent. The group said its 2002 sales were likely to grow by a low single-digit percentage, adding that it also expected operating profit in 2003 to come in lower than in 2001. The sale of cheaper copycat versions of Glucophage sent sales of all Merck's forms of the drug down 61 percent in the first quarter to 253 million euros. Merck's <MRCG.DE> share has roughly halved in value this year and is now below the level of its initial public offering in 1995. The company is trying to counter cheaper versions of Glucophage by shifting patients to two improved versions of the treatment, Glucovance and one-a-day tablet Glucophage XR. "The potential stark reality of the U.S. situation and the difficult outlook for the line extensions may cause further share price pressure in the wake of the second-quarter results," Goldman Sachs said in a research report last month. CANCER DRUG ERBITUX The Glucophage problem has been compounded by Merck's decision to slow the progress of its main drug in development, cancer treatment Erbitux, as regulatory problems faced by U.S. partner ImClone Systems <IMCL.O> evolved into corporate scandal. ImClone Chief Executive Samuel Waksal was arrested in June on charges of trying to sell ImClone stock and tipping off family members before the company announced that the regulatory authorities had rejected its U.S. application for Erbitux. For Germany's Merck -- no relation to U.S. company Merck & Co. <MRK.N> -- the main task will be keeping investors interested before 2004, when it plans to get Erbitux on the European market. In April, Merck delayed filing for European approval for Erbitux to the first half of 2003 from the second half of this year as partner ImClone faced U.S. regulatory problems. Merck will file for both colorectal and head-and-neck cancer. For the second quarter, investors will also be watching how the group's specialty chemicals segment -- led by its liquid crystals business -- is recovering from the economic slowdown. Liquid crystals are used in laptop computers, flat screens and cellphones. Analysts will also be watching how the weakening dollar and yen have affected European pharma companies this quarter and whether Merck can give timing for the planned flotation of a minority stake in its VWR laboratory distribution business. ((For details of a Reuters poll of analysts' forecasts for Merck's Q2 results, please double-click on [nL22360981])) ((Frankfurt Newsroom +49 69 7565 1270, frankfurt.newsroom@reuters.com)) ($1=.9910 Euro) REUTERS * end of story *