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Merck & Co. Inc. (MRK)
PRICE
CHANGE
U.S. dollars 28.06
-2.35
4:02 p.m.
* At Market Close
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⢠Pharmaceutical & Biotech
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Analysts React: Vioxx Verdict
August 19, 2005 6:08 p.m.
Merck took a hit Friday, with shares slumping 7.7% after the company was found negligent in the death of a man who used Vioxx, a painkiller taken by more than 20 million Americans before it was withdrawn from the market last year. Analysts agree that the verdict is a major negative for Merck and will tarnish the company's reputation as it faces more litigation. But some point to Merck's appeal of the decision and are less concerned about its impact on future cases.
* * *
The fact that Merck lost, and that the award was sizable, will likely energize the plaintiff's bar and will increase the frequency at which the company gets sued. Investors should prepare for a multiyear legal battle. Quantifying Merck's total liability still largely remains an exercise in futility in our opinion, but we continue to feel that the dividend is safe, at least in the interim.
-- Prudential analyst Tim Anderson, who has a "neutral" and $34 price target on Merck
* * *
We believe the number of lawsuits filed against the company will increase dramatically in the coming months, given the large award for the plaintiff and the short time to deliberate, putting the company at greater risk for additional litigation. Notably, the courtroom was filled with plaintiff attorneys from other cases when today's decision was rendered, and evidence from this trial may be used in subsequent cases.
-- David Moskowitz, analyst with Friedman Billings Ramsey, who rates Merck at "underperform" with a $27 target
* * *
We do not think investors should apply this ruling to the thousands of cases Merck faces. This is because: 1) the trial occurred in a particularly plaintiff-friendly jurisdiction. 2) the plaintiff's attorney, Mark Lanier, was quoted after the verdict stating that the state of Texas punitive-damages cap would likely reduce the $229 million punitive award. 3) The ruling could be overturned on appeal, or the award amounts could be reduced significantly.
-- Merrill Lynch analyst David Risinger, who rates Merck "neutral"
* * *
The punitive damages are most curious as Texas law limits punitive damages to [two times] economic impact, plus up to $750,000. Additionally, Merck was ruled to have a design defect, to have given insufficient instructions, and Vioxx was ruled to be unreasonably dangerous. Merck has already initiated the appeals process, which could delay a resolution for several years, and will likely reduce the financial damages significantly. Furthermore, Merck reiterated its intent to defend and litigate each upcoming Vioxx case.
-- Deutsche Bank analyst Barbara Ryan, who rates Merck "neutral" and has a $31 target on the stock
* * *
Around late September, Merck should release one-year follow up data ⦠to answer whether the increased [cardiovascular] risk observed lingers after stopping Vioxx therapy. Our general belief is that the likelihood of such is low, but if [cardiovascular] risks remain, we believe Merck's incremental Vioxx exposure would be very high.
-- UBS analyst Carl Seiden, who rates Merck "neutral" with a $33 target
--Compiled by Worth Civils
⢠Prudential Equity Group listed no specific disclosures related to Merck.
⢠Friedman Billings Ramsey listed no specific disclosures related to Merck.
⢠Merrill Lynch says one or more analysts responsible for covering the securities of Merck owns such securities, and the firm acts as a market maker for the securities. The firm has received compensation for investment-banking services from the company within the past 12 months, and expects to receive or intends to seek further compensation within the next three months.
⢠Deutsche Bank owns 1% or more of any class of common equity securities of Merck.
⢠UBS makes a market in the securities of Merck and may hold a significant non-equity financial interest in this company. The firm has acted as manager/co-manager in the underwriting or placement of securities of the company within the past three years, and within the past 12 months, the firm has received compensation for investment-banking services.
http://online.wsj.com/article/0,,SB112448637613418493,00.html?mod=home_whats_news_us
