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Merck, the world's third-largest drugmaker, said second-quarter earnings rose 7 percent, largely due to the benefit of favorable foreign exchange rates.

The results indicated slowing growth for cholesterol fighter Zocor, its top-selling drug, and flat sales of arthritis treatment Vioxx, which Merck had once proclaimed its biggest hope for future earnings growth.

The company cut its 2003 revenue forecast for Zocor by about $200 million, amid slowing demand for members of the "statin" family of cholesterol medicines.

David Moskowitz, an analyst at Friedman, Billings, Ramsey, called the results "weak" as sales and earnings per share fell short of expectations.

The stock, a component of the Dow Jones industrial average, fell more than 3 percent in midday trade on Monday.

Merck earned $1.87 billion, or 83 cents per share, 1 cent below the average estimate among analysts, according to Reuters Research.

Sales of prescription drugs rose 7 percent to $5.52 billion, but would have risen only 2 percent if not for favorable foreign exchange factors.

The weak dollar boosts results because it makes overseas earnings worth more when converted into dollars.

"What concerns us is that pharmaceutical sales grew by 7 percent, but a majority of that came from variable currency impact," Moskowitz said.

Total company sales rose 4 percent to $13.28 billion, about $400 million less than the average Reuters Research forecast.

The company, based in Whitehouse Station, New Jersey, said sales of Zocor rose 3 percent to $1.24 billion. The medicine was also hurt as its patent expired in some overseas markets and it began competing with cheaper copycat medicines.

Wholesalers cut back on purchases of Zocor in the quarter because they had surplus supplies on hand.

Merck lowered its 2003 forecast for Zocor sales to between $5.4 billion and $5.7 billion, from its prior forecast of $5.6 billion to $5.9 billion.

Shares of Merck fell $2.03 on Monday to $59.74 on the New York Stock Exchange.

VIOXX, ZOCOR DISAPPOINT

Sales of Vioxx rose just 1 percent to $801 million despite a surge of buying by wholesalers that Merck said will dampen demand later in the year.

Merck trimmed its forecast for combined sales of Vioxx and sister drug Arcoxia by about $100 million to $2.5 billion to $2.7 billion. Vioxx sales have been hurt by concerns it slightly raises the risk of heart attacks.

Negative wholesaler trends also hurt sales of osteoporosis treatment Fosamax and hypertension medicine Cozaar. Fosamax revenues fell 9 percent to $535 million, while Cozaar's rose 3 percent to $543 million.

Asthma drug Singulair was a bright spot with an 89 percent sales gain, to $427 million. U.S. regulators in January had approved use of the asthma medicine for hay fever.

An unfavorable trend was seen with Merck's low-margin Medco Health pharmacy benefits manager unit. Its sales, at $8.4 billion, were flat with those in the year-ago quarter.

The business is paid by insurers to ensure drugstores only dispense medicines on the insurer's list of authorized medicines. Merck plans to spin off all the shares of Medco to company shareholders in the third quarter.