Merck Still Murky

Merck's stock was volatile Thursday. After the verdict was announced, the stock spiked to $30.90, but by the end of the day, it closed at $29.48, up $1.07, or 3.8%. Volume of roughly 38.1 million shares was nearly four times the average daily trade for the past three months.

Impossible to Project

Wall Street's uncertainty is illustrated by Rauch. Heading into the New Jersey jury deliberations, he thought Merck would lose the case based on testimony and his belief that the company's lawyers "did little to modify their strategy" from the case it lost in Texas, he said in a Nov. 1 report.

In August, a Texas state court jury awarded $253.4 million in actual and punitive damages to the wife of a man who died of a heart attack. The man took Vioxx for about eight months, and the jury linked his death to the drug.

Merck will appeal. Even if it loses the case, Merck's penalty will be reduced by at least 90% because the jury's award far exceeded the state's limit on punitive damages.

After the New Jersey verdict on Nov. 3, Rauch said that despite the good news for shareholders, "it is still too early to know if Merck will be able to win cases on a consistent basis in New Jersey courts, other state courts or in federal courts." The first federal court case, in which rules of evidence are stricter than in state courts, starts Nov. 28 in Houston.

Rauch has a hold rating on Merck. He doesn't own shares, and his firm doesn't have an investment banking relationship. The New Jersey verdict also doesn't affect his less-than-enthusiastic view that Merck is a company with a "lack of earnings growth, weak [research] pipeline, damage to its reputation and litigation risk," plus the mid-2006 U.S. patent expiration of the cholesterol drug Zocor, its best-selling product.