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Vioxx mistrial a blip in Merck's radar
Analysts still see weak sales ahead for Merck; holding out hope for Gardasil
December 13, 2005: 12:59 PM EST
By Aaron Smith,

NEW YORK ( - The mistrial in the third Vioxx case gave investors a scare on Monday, but analysts say that it changes little for Merck, which has an improving pipeline but still faces thousands of lawsuits and is unlikely to show real growth for years.

"This case doesn't change anything," said Barbara Ryan, analyst for Deutsche Bank North America, who has a "neutral" rating for Merck. "This is going to play out over a very long period of time."

Evelyn Irvin Plunkett of St. Augustine, Fla., sued the company for the 2001 death of her husband, Richard Irvin, who died of a heart attack after taking Vioxx for one month. The federal judge overseeing the wrongful death case in Houston ruled a mistrial on Monday because the jury deadlocked.

Merck's stock price dropped 3 percent on Monday, but mostly recovered Tuesday morning.

Chris Shibutani, analyst for J.P. Morgan, referred to the mistrial in his note as a minor loss for Merck because it was unable to win a case which had been "largely favorable" for the company. Shibutani, who rates Merck a "neutral," said the downslide in stock price was "an appropriate market response."

The mistrial occurred on the trial's fourth day of deliberations, which began on Thursday just before the New England Journal of Medicine published an editorial accusing Merck of deleting information about Vioxx heart risks from a study provided to the journal in 2000. Merck denied the allegation. The Wall Street Journal reported that the jury was 8 to 1 in favor of Merck.

The first two cases in Vioxx litigation, both in state court, resulted in one loss and one win for the drug making giant, which still faces about 6,500 lawsuits and has vowed to fight them all. Merck requested that a retrial in the Plunkett case begin in February, and says the next scheduled trial is in federal district court in January, possibly to be held in New Orleans.

So what's the market landscape for Merck going forward?

John Boris, analyst for Bear, Stearns, painted a portrait of anemic but sustainable growth over the next few years.

"We see only limited upside to the stock, since earnings growth is not expected to resume for Merck until 2009 and the litigation news flow on Vioxx in the near term will be a major overhang," wrote Boris, who rates the company a "peer perform" or "neutral," in a note published Tuesday. Boris projects growth of 1 percent or 2 percent from 2004 to 2009.

In his Monday note, Boris outlined some of the problems that have been haranguing Merck all along, including the absence of Vioxx, an arthritis painkiller that had $2.5 billion in annual sales before it was pulled of the market in 2004; the long list of Vioxx lawsuits that have yet to go to trial; the impending 2006 patent expiration of Zocor, a $5.2 billion cholesterol-lowering statin; and the company's plan to cut 7,000 jobs and close or sell five plants to save $4 billion.

Boris said Merck's experimental vaccine Gardasil, for the prevention of cervical cancer, is the company's biggest potential product for bringing in new revenue. Boris projects $1.2 billion sales for Gardasil in 2010, assuming the Food and Drug Administration approves the drug.

The analysts interviewed for this story do not own stock in Merck, but the firms they work for have done business with the company.

Merck is holding a meeting for analysts and the press on Thursday regarding its financial future. To read more about this meeting, click here.  Top of page

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