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. Last Updated: 07/27/2016

Merck Inflated Revenues By More Than $14Bln

NEW YORK -- Merck & Co. shares fell 8 percent to 44.80 euros ($43.46) in Europe on Monday after news that it recorded revenues of more than $14 billion from its pharmacy-benefits subsidiary Medco that the unit never actually collected.

The information was contained in a company filing to the U.S. Securities and Exchange Commission.

The shares had earlier fallen to a low of 42.50 euros after The Wall Street Journal gave details of the filing.

Medco, which manages pharmacy-benefit programs for employers and health insurers, included as part of its revenue the co-payments collected by pharmacies from patients, even though it had no contact with the co-payment money. Patients make co-payments directly to pharmacies when they buy medicine.

Retail co-payments included in product revenues amounted to approximately $2.8 billion in 1999, $4.04 billion in 2000, $5.5 billion in 2001 and $1.64 billion in the first quarter of 2002, according to the filing.

That represented roughly 10 percent of Merck's overall reported revenue.

While Merck had already been charged with overstating revenue by billions of dollars, in a lawsuit filed earlier this month, by including consumer co-payments for prescription drugs, Friday's filing was the first indication from the company of the amount.

Merck declined to comment on the litigation at the time but had said in the past that its Medco unit acted properly when it booked revenue from patient co-payments to pharmacies that it never collected, a practice the suit alleges has been going on since 1993, when Merck acquired Medco.

A Merck spokesman said last month the accounting method had been used by Medco, which negotiates pharmaceutical contracts for health insurers, before Merck acquired the firm and that two independent auditors had reviewed the procedure and neither had raised any objection.

News of the inflated revenue number comes as Merck is preparing to spin off 20 percent of Medco in a $1 billion initial public offering. The sale of the pharmacy benefits manager has been delayed twice but as late as Friday was expected to proceed this week.

Merck has already reduced the expected price range to $20 and $22 each from $22 to $24 last week.