Stock of the Day
|
Merck (MRK)
Merck Settles Vioxx Cases for $4.85bn
Investors have slowly but surely given their approval back to Merck. Sure, the company has lots of profitable drugs, but who can think of all that when lawsuits involving Vioxx abound? For Merck shareholders, Friday's news was a bright spot in an ink black sky. The company announced $4.85bn settlement with past Vioxx users. Class action and other settlement suits are likely to end if 85% of claimants agree to the deal, and investors seem to think that it will likely be approved. Merck stock was up by 4.67% in late morning trading. Will this euphoria last, or are more lawsuits lurking in the background?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
The biggest thorn in the side of Merck over the past few years has been Vioxx, an anti-inflammatory drug. After being approved by the Food and Drug Administration (FDA) in 1999, sales of Vioxx quickly skyrocketed into the billions of dollars, but this quickly ended when Merck pulled the drug from shelves in late 2004. Research had shown that Vioxx increased the risk of heart attack in some patients, and resulted in several deaths. The withdrawal of the drug and subsequent medical studies pointing to the risk associated with Vioxx brought about thousands of lawsuits, and potentially millions of dollars in settlements.
|
Over the first few weeks after the Vioxx recall, investors saw the value of their shares drop from $44 to $30 (32%), and subsequently fall to $26. While the company did maintain a plethora of other profitable drugs, as well as an arsenal of attorneys, the overall sentiment of investors was that the company was at a considerable risk. Sympathetic juries and the sheer number of lawsuits meant that legal costs would soar and the odds of a large settlement had dramatically increased. CEO Raymond Gilmartin, who had been with Merck since 1994 and helped push a variety of new drugs into the pipeline, resigned from the company, forcing Richard Clark to take the helm in 2005.
|
By the early 2007 investors had changed their tune. Why the sudden change in course? Merck had managed to slog through a number of lawsuits without gigantic settlements (unlike the tobacco industry), and it looked as if the cases were becoming more manageable (a federal court also dismissed one particular class action case in New Jersey). The company's other drug offerings were selling well. In April 2007 Merck raised its full year earnings per share (EPS) guidance from $2.60 to $2.75, which came as a surprise considering an FDA rejection of a new Vioxx-like drug, Arcoxia. Despite this FDA rejection, Merck did receive a nod for Janumet, a new drug aimed at treating type 2 diabetes; Cordaptive, a cholesterol drug replacing Merck's patent-expired Zocor; and Isentress, a HIV drug that is on the FDA fast track.
|
Shares of Merck have returned to pre-Vioxx withdrawal levels in recent weeks. The company reported a 12% jump revenue to $6 billion, pushing profits to $1.53bn. Of the $6bn in sales, $1bn came from Merck's asthma drug Singulair.
|
Profile |
Click here to read a detailed profile of Merck.
|
|
|
|
|
