-Caveat Lector-
>From http://www.guardian.co.uk/business/story/0,3604,751456,00.html
}}}>Begin
11.45am update
US drugs giant accused of overstating revenue
Mark Tran
Monday July 8, 2002
The Guardian
Shares in US drugs giant Merck fell sharply in Europe following a report in the Wall
Street Journal claiming the group inflated revenues by $12.4bn (£8bn) over the past
three years.
The Journal said Merck recorded $12.4bn in revenue from Medco, its drugs discount
subsidiary. But Medco, which buys drugs in bulk and then resells to chemists, never
received the revenue in the first place. Instead the money was paid to retail chemists
from customers to cover the cost of medical insurance. The pharmacy keeps those
payments.
Between 1999 and 2001, Medco, acquired by Merck in 1993, recorded a total of
$12.4bn in funds it did not collect. The Journal says there is no indication that
regulators are reviewing Medco's and Merck's accounting.
Merck revealed the accounting practice in April in a filing with the US stock market
watchdog, the securities and exchange commission (SEC). But the size of the
recorded revenue was not disclosed until Friday.
Shares in Europe opened lower following the Journal report with the FTSE 100 down
38 points at 4,577.6 in early trading. Shares in Merck fell 11.5% in European trading
to 43 euros (27.6p). The markets had rallied on Friday, with the Dow Jones industrial
average jumping 320 points, but investors remain jittery after a spate of financial
scandals.
Beginning with the collapse of US energy trader Enron last December, Wall Street
has been battered by a blizzard of financial scandals. Quick on the heels of Enron, its
auditor, Arthur Andersen, disintegrated as clients deserted in droves. Now
WorldCom, America's second largest long distance phone company, is teetering on
the verge of bankruptcy, after admitting to having inflated profits by $3.8bn.
"As before, the frayed confidence of investors in corporate America, with the never-
ending series of balance sheet scandals, is weighing heavily on markets," Swiss
brokerage company ZKB said in a note to clients, quoted by Reuters. "Lost
confidence can only be won back through convincing profit figures and rigorous
management changes at the top of the companies that have fallen into disgrace."
Moving to crack down on "creative accounting practices", the SEC last week ordered
that officials of more than 900 companies must swear an oath in writing that the
numbers in their recent financial reports are correct.
Guardian Unlimited © Guardian Newspapers Limited 2002
End<{{{
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