US drugs titan Merck fiercely defended its accounting practices today as its stock slipped on news that its pharmacy-benefits unit had booked $14 billion in revenue it never collected.
Merck said its Medco unit had included 'co-payments' collected by pharmacies from patients as revenue, even though Medco never received the cash. The co-payments - $2.838 billion in 1999, $4.036 billion in 2000 and $5.537 billion in 2001 - were revealed on Friday in a filing with the Securities and Exchange Commission prior to the sale of 20% of Medco to the public.
But Merck, which first informed the SEC of the copayments system in April, managed to avert a widely-feared rout on a jittery Wall Street. Its stock fell over 3% in early afternoon trade.
'Merck is confident that Medico's practice of recognising retail copayments as revenue is in accordance with generally accepted accounting principles,' a spokesman said.
'The practice has no impact on Merck net income or earnings per share because a corresponding equivalent amount is also included in the cost of revenue', he added.
Merck had included an explanation of the co-payments in its registration of the Medco initial public offering with the SEC. Plans for the Medco sale were proceeding.
Merck employs 460 people in Clonmel, Co Tipperary.
