Merck & Co. survived the fourth quarter of 2012 with a net income gain despite a decline in sales, but the pharma giant offered investors lower profit guidance for 2013, and disclosed its second clinical setback in as many months by stating it would delay seeking approval until 2014 for osteoporosis drug candidate odanacatib.

Merck finished Q4 with a net income of $1.4 billion, or 46 cents per share, down 7.3% from $1.51 billion or 49 cents per share in the final three months of 2011, during which results were lowered by acquisition and restructuring charges. Non-GAAP EPS excluding special items sunk 14.7% from 97 to 83 cents per share, just above the 81-cent EPS predicted by a consensus of analysts questioned by Thomson Reuters.

Also sliding but ahead of analyst forecasts were total sales, which fell 5% during Q4 to $11.7 billion from $12.3 billion—but still ahead of the $11.48 billion consensus estimate. Full-year sales in 2012 dipped 2%, to $47.3 billion from $48 billion.

The sales slump reflects generic competition that followed the August 2012 loss of patent protection for Merck’s once-daily oral asthma treatment Singulair (montelukast sodium). Q4 sales plunged 67% to $80 million from nearly $1.5 billion, while overall 2012 sales fell 30%, to almost $3.9 billion from nearly $5.5 billion in 2011. Singulair sales in 2013 aren’t likely to do much better, since the drug will lose patent protection in Europe this month, though market exclusivity remains in Japan through 2016.

Japan and U.S. sales were strong, however, for the diabetes drug Januvia (sitagliptin), which is now Merck’s best-selling pharmaceutical product. Januvia enjoyed a 23% year-to-year sales boost, to nearly $4.1 billion in 2012. Q4 Januvia sales climbed 18%, to $1.1 billion from $960 million in Q4 2011.

Net income for all of 2012 rose 6% from the previous year, to $6.7 billion or $2.16 per share from $6.3 billion or $2.02 per share. Non-GAAP EPS for the full year rose 1% to $3.82 per share from $3.77 per share.

“We expected that 2012 would be a challenging year, particularly with the Singulair patent expiry as well as pricing and austerity challenges. Despite these challenges, we were able to maintain our top line at 2011 levels,” Kenneth C. Frazier, Merck’s chairman and CEO, told analysts this morning on a conference call to discuss the latest earnings report. “By driving growth in our broad product portfolio and reducing costs, we were able not only to absorb the impacts of a challenging year, but also reinvest for future growth.”

For 2013, Merck issued lower-than-2012 earnings guidance projecting non-GAAP EPS of between $3.60 to $3.70 per share, excluding special items; and estimating GAAP EPS of $2.03 to $2.26. Two analyst consensus estimates were higher: Bloomberg’s ($3.69 per share) and Thomson Reuters ($3.68 per share).

Merck offered no numbers on full-year 2013 revenues except to say they would “be near 2012 levels on a constant currency basis.”

Merck said it would hold off until 2014 plans to file for marketing approval for its osteoporosis drug candidate odanacatib, after reviewing safety and efficacy data from a pivotal Phase III trial. The company said its 2014 filing will include additional data from a blinded extension of the trial in approximately 8,200 women—data that Merck will not disclose until the trial’s database is locked, and only “at an appropriate science meeting,” Peter N. Kellogg, executive vp and CFO, told analysts this morning.

“The company continues to believe that odanacatib will have the potential to address unmet medical needs in patients with osteoporosis,” Merck said in a statement.

Odanacatib is Merck’s second clinical setback in as many months. Last month, Merck said it would not file for FDA approval to market the cholesterol drug candidate Tredaptive after it failed a late-stage clinical trial. Tredaptive showed an increase in nonfatal side effects, and did not significantly reduce the risk of coronary deaths, nonfatal heart attacks, and strokes.

Merck emphasized it still plans to file marketing approvals for several other drug candidates this year, including the widely-discussed and promising suvorexant for insomnia, the anticlotting drug vorapaxar, the fertility treatment Elonva, and a new version of the Gardasil vaccine against sexually transmitted cancers caused by human papilloma virus that protects against more virus strains.

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