Merck (MRK - Free Analyst Report), the world's second largest pharmaceuticals company in terms of revenues, reported second-quarter earnings of $0.24 a share, versus $0.84 in the comparable year-earlier period. The substantial decline can be attributed to higher costs tied to the company's $41 billion acquisition of Schering-Plough. Excluding these one-time items, Merck earned $0.86 a share, topping our estimate of $0.80. Revenues ($11.3 billion) nearly doubled year over year, thanks to the expanded product line from the addition of Schering-Plough. Strong contributions from existing products included Januvia (up 30%, to $600 million) and Janumet (up 40%, to $218 million). However, lower-than-expected sales of Singulair, Merck's top-selling product, has raised a few red flags for the year ahead outlook.

Healthcare reform may cause some uncertainty in the near term, as well. Over the next few years, pharmaceutical companies are expected to be burdened by higher rebates and various other elements related to the new healthcare legislation.

On the positive side, a proposed partnership with Sanofi-Aventis (SNY) is promising. In mid-March, Merck, and Sanofi agreed to combine their animal healthcare units in a deal that, pending regulatory approval, would create the largest supplier of veterinary medicines in the world. The pairing would represent nearly 30% of the $19 billion-a-year global market, surpassing Pfizer’s (PFE - Free Analyst Report) animal health business, which currently accounts for about 20% of the market. From a geographic standpoint, Merck stands to gain some increased exposure. Sanofi’s animal business operates mainly in North and South America, while Merck operates mostly in Europe and emerging markets. Moreover, from an operating standpoint, there appears to be very little overlap. Sanofi specializes in house pets, manufacturing flea and tick treatments, while Merck focuses more on livestock, producing cattle vaccinations.

On balance, management has scaled back its 2010 share-earnings guidance by just two pennies at both ends of the range, to $3.29-$3.39.

About The Company: Merck & Co., Inc., is a leading manufacturer of human and animal health care and specialty chemical products. Important product names include Singulair (asthma); Vytorin, Zocor (cholesterol-lowering agents); Fosamax (osteoporosis); Crixivan (HIV/AIDS); Vasotec, Prinivil (angiotensin converting enzyme (ACE) inhibitors for high blood pressure and angina); and Prilosec (gastro.). The company acquired Medco in November of 1993 and spun it off in August of 2003.

* This report includes late-breaking news not reflected in our full-page review of this company.