NEW YORK (FORTUNE Magazine) - Much of Merck's future will be determined in court: The company has reportedly set aside nearly $700 million to cover just the legal fees associated with the flood of lawsuits blaming Vioxx for heart-related ailments and deaths.

And the basic business has big problems of its own: Merck is facing the loss of patent protection on several key drugs over the next five years, including the $4-billion-a-year cholesterol drug Zocor -- with few potential blockbusters coming along to replace them.

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CEO Richard Clark laid out his recovery plan in December. He'll cut $5 billion in costs by 2010 and get more aggressive about strategic acquisitions.

He'll focus R&D efforts on nine priority areas, including Alzheimer's, diabetes, cancer, and vaccines.

Given the uncertain Vioxx liability and the murky outlook for earnings -- Goldman Sachs doesn't expect any growth until 2009 -- we wouldn't buy the stock today.

But if it fell below $30, we'd be tempted by Merck's (Research) dividend ($1.52-a-share) and the potential for a breakthrough drug launch (Gardasil, a vaccine for cervical cancer now awaiting FDA approval, may be Merck's best hope).