Ailing Merck Defies Cure

And although there are some interesting prospects in the pipeline, analysts like Rauch simply can't make up their minds about how well and how fast the company can recover. Right now, Merck has so many neutral recommendations on Wall Street that it could change its name to Switzerland. Thomson First Call lists 23 hold or neutral ratings compared to four buys and three sells.

Analysts also aren't sure if Gilmartin's successor will be an insider or an outsider. (He was the first outsider in Merck's history to become CEO, although he had been the chairman and CEO of medical-equipment maker Becton Dickinson (BDX Quote).)

A review of several recent analysts' reports plus interviews with several Merck-watchers by TheStreet.com suggests that Merck will change by small steps rather than by leaps and bounds, regardless of who succeeds Gilmartin.

"The board is saying 'Let's get the pipeline rebuilt,'" said Rauch, who forecasts a turnaround in 2007. "That would seem to favor an insider as the next CEO. They seem confident in their abilities and don't feel it's necessary to go outside [for a new CEO]. They are looking to get back to their roots." (Rauch doesn't own shares; his firm doesn't have an investment banking relationship.)

And despite constant Wall Street speculation, analysts doubt Merck will make a big acquisition. Merck continues to emphatically eschew the prospects of a big buy in its conversations with analysts and investors.

"A big acquisition will not provide an answer," said Sena Lund of Cathay Financial, an investment research firm, who has a neutral rating on the stock. "A big acquisition will be out of frustration -- not a strategic move."

Bad News Approaching

Merck has had plenty of frustration. The back-to-back-to-back-to-back canceling of its experimental drugs last year illustrated to some analysts that Merck should have been more prepared.