Hold Horses on Merck, Analysts Say

When it comes to investing in Merck(MRK Quote), don't panic and don't sell the shares just because the company lost its first Vioxx case.

This prevailing Wall Street advice was largely ignored on Friday after a Texas state court jury voted to support a wrongful death claim against Merck, assessing $24.4 million in actual damages and $229 million in punitive damages. The stock sank nearly 8% to $28.06, as 38.4 million shares -- four times the daily average -- were traded.

"Investors are overreacting," says Michael Krensavage of Raymond James, in a report to clients. "Appellate courts [are] likely to squelch Vioxx hysteria."

Few analysts are as emphatic as Krensavage, who reaffirmed a strong buy rating on Merck on Friday, but the consensus suggests that investors wait to see what happens with several upcoming cases -- and Merck's appeal of the Texas case -- before bailing out of the stock. If you want to sell or avoid the stock, they add, do so because of Merck's fundamentals rather than because of one jury verdict.

On Monday, however, investors were sending the stock down 61 cents, or 2.2%, to $27.45 after about two hours of trading. The stock fell as low as $27, and trading was nearly triple the average daily volume for the last three months.

"We do not think investors should apply this ruling to the thousands of cases Merck faces," says David Risinger of Merrill Lynch, in a report to clients. He argues that the trial took place "in a particularly plaintiff-friendly jurisdiction" and that the $229 million punitive damage award is way above the amount permitted by state law. "The ruling could be overturned on appeal, or the award amounts could be reduced significantly," he says.

In the Thousands

Whether the district is "plaintiff-friendly" is a continuing debate, with a number of Wall Street analysts saying it is and as many lawyers saying it isn't. At any rate, Risinger said in a Friday research report that the Texas case likely will encourage more people to sue Merck. As of June 30, the company was a defendant in 4,100 personal injury lawsuits, involving 7,500 plaintiff groups, plus 120 class-action personal injury lawsuits.