Merck & Co.'s (MRK) second-quarter profit fell 12% on merger costs and lower vaccine sales, while cost cuts helped merger partner Schering-Plough Corp. (SGP) report higher quarterly earnings.

Both companies faced headwinds from a weak economy and unfavorable currency-exchange rates, as well as continued sales declines for their jointly marketed cholesterol drugs, which have been hurt by lingering concerns about their efficacy and safety.

Merck, Whitehouse Station, N.J., is in the process of acquiring Schering-Plough in a cash-and-stock deal valued at about $41 billion when it was announced in March. The deal is subject to government antitrust clearance and approval by both drug makers' shareholders, and is seen closing by the end of the year.

Merck, which has been hurt by drug patent expirations and research setbacks, went after Schering to gain access to some fast-growing products and a relatively strong late-stage research pipeline. Also, Merck expects the deal to generate significant cost savings, including a planned 15% reduction in the combined entity's work force.

Although Merck's numbers were down, they exceeded Wall Street expectations. Some of the upside appeared to come from a rebound in Merck's top-selling drug, Singulair, an allergy and asthma medication. Sales rose 16% to $1.3 billion, following declines in recent quarters that stemmed from reports of the drug's possible association with suicidal behavior. Deutsche Bank this week said Singulair demand was helped by a "strong" allergy season.

Merck shares rose $1.31, or 4.7%, to $29.27, while Schering shares rose 83 cents, or 2.9%, to $26.30.

"We believe that sentiment coming into the quarter was negative and that these results will mollify investor's fears of further deterioration," said Les Funtleyder, analyst with Miller Tabak.

Merck said net income for the three months ended June 30 fell to $1.56 billion, or 74 cents a share, from $1.8 billion, or 82 cents a share, a year earlier. The latest quarter included restructuring and merger costs; excluding these earnings were 83 cents a share, well ahead of the 77-cents-per-share mean estimate of analysts surveyed by Thomson Reuters.

Merck's second-quarter sales fell 3% to $5.9 billion but exceeded the Thomson estimate of $5.84 billion. Sales were weighed down by currency rates; excluding this effect, sales would have risen 3% from a year earlier.

Combined sales of cholesterol drugs Vytorin and Zetia declined 10% to about $1 billion. Studies released during 2008 raised questions about the drugs, though Merck and Schering-Plough have defended them.

More recently, in June, a study comparing Zetia with Abbott Laboratories' (ABT) Niaspan was terminated early for unclear reasons, leading to market speculation that Zetia didn't perform well. Merck and Schering executives said Tuesday news of the study's halt has had no commercial impact on the drugs so far. Results of the study, which was funded by Abbott but conducted by independent investigators, may be released later this year.

Neither Merck nor Schering records sales from the cholesterol-drug joint venture, but they split profits which are recorded as equity income from affiliates.

Combined sales of Merck's blood-pressure drugs Cozaar and Hyzaar declined, while diabetes drugs Januvia and Janumet increased.

Merck's vaccines unit, which previously had strong growth in 2006 and 2007, continued to have problems related to supply constraints and weakened market demand. Sales of cervical-cancer vaccine Gardasil dropped 18% to $268 million, while sales of vaccines for rotavirus and shingles also dropped.

Merck reiterated its full-year 2009 financial forecast, including earnings of $2.84 to $3.09 per share.

Schering-Plough, Kenilworth, N.J., saw second-quarter net income rise 45% to $671 million, or 38 cents a share, from $462 million, or 26 cents, a year earlier. Excluding one-time items, earnings would have been 46 cents a share, ahead of the Thomson estimate of 45 cents a share.

Schering-Plough sales dropped nearly 6% to $4.6 billion, with unfavorable currency rates reducing growth by 10 percentage points. Sales of arthritis drug Remicade rose 2% to $565 million, while gains also were posted for allergy drug Nasonex and cancer drug Temodar.

Schering's animal-health unit saw sales drop 17% to $677 million, which Chief Financial Officer Robert Bertolini attributed to "tough global economic conditions," difficult comparisons to a year-earlier period that included the launch of a bluetongue vaccine, and the impact of 2008 product divestitures.

Merck and Schering are considering selling animal-health assets in order to appease antitrust regulators reviewing the merger. Merck Chief Executive Richard Clark said he was exploring "all of our options" for animal-health divestitures. Merck has an animal-health joint venture, Merial, with Sanofi-Aventis SA (SNY).

Schering's consumer-product sales dropped 5% to $381 million. Clark said Merck was considering an outside partner to help invest in the Schering consumer operations, which include Dr. Scholl's foot-care products, after the merger closes.

-Peter Loftus; Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com