Arthritis Drugs Put a Hurt on Merck and Pfizer

Riccardo criticized fellow analysts for calculating how many Vioxx pills were sold, extrapolating test results to these patients and then trying to come up with a legal liability number. Such calculations "may only serve to inflame the market," he said.

Although plaintiffs' attorneys "may win some money from sympathetic judges and juries," Riccardo said the only way liability costs would grow out of control would be for "large numbers of people" to be seriously harmed. "And more important," he added, "there has to be a smoking gun," such as a revelation that Merck "knew and covered it up." (He doesn't own shares; his firm has provided non-investment banking services for Merck.)

Merck's most recent 10-K report notes that the company is subject to a number of Vioxx-related suits alleging injuries such as heart problems and kidney damage. The lawsuits have been filed in federal courts and several state courts, Merck says. The company says these lawsuits are "without merit" and will "vigorously" fight them -- comments that were repeated by Merck officials when they announced that Vioxx was being removed from the market.

"We believe it's impossible to estimate the Vioxx litigation risk," said David R. Risinger, a Merrill Lynch analyst, in a research note to clients Sept. 30. Risinger has a neutral rating on the stock.

He said it was tough to compare Vioxx to Wyeth's fen-phen, which was linked to heart valve disease. He said Wyeth has taken $16 billion to $17 billion in charges and has paid out over $13 billion related to the lawsuits. Because litigation is continuing, Wyeth could incur more costs.

Because a "significant percentage" of Vioxx has been taken by patients for a short period of time and because the higher risk of heart problems has been linked to long-term use, he said plaintiffs' attorneys will have a more difficult task than the lawyers representing fen-phen patients. (His firm is a market maker in Merck's stock and expects to seek or receive investment banking fees from Merck within the next three months. His report says "one or more analysts" responsible for the report owns shares in Merck.)