Merck Still Murky

Analysts' estimates for Merck's legal bill run as high as $55 billion, but most keep their estimates under $20 billion. Prudential's Anderson predicts Vioxx will cost less than fen-phen, which has sucked out about $23 billion from Wyeth (WYE Quote). Anderson, who has a neutral rating on Merck, doesn't own shares. His firm doesn't have an investment banking relationship with Merck.

Fen-phen is the diet drug cocktail that was linked to heart valve damage and other dangerous cardiovascular problems in the late 1990s. Wyeth made Pondimin, which created the fen-phen cocktail when combined with the non-Wyeth drug phentermine. Wyeth pulled Pondimin and another diet drug, Redux, from the market in 1997.

Krensavage sees some financial comfort for Merck in, of all things, tobacco litigation.

Even if Merck lost the New Jersey case, "appeals would have delayed any payments for years," he says. Altria Group's (MO Quote) Philip Morris USA division has paid $20 million in two suits involving ill smokers, he says, and each case lasted seven years until the tobacco company ran out of appeals.

Merck is taking an Altria-like approach by defending each case rather than pursuing a group settlement, Krensavage says. "While Merck defends itself, it benefits from free cash flow of more than $5 billion a year," he says.

The New Jersey case also resurrected a question that Merck hasn't answered since early this year and probably won't for some time: Will it try to bring Vioxx back to the market?

In February, an advisory committee to the FDA recommended that Vioxx could be returned to the market for certain patients under certain circumstances. The vote was 17-15. The FDA usually follows its advisory panel's recommendations.

Right now, the point is moot because Merck would have to resubmit a Vioxx application. On Thursday, Frazier repeated earlier statements that Merck is discussing the matter with regulators but hasn't made a decision on whether it will seek to reinstate Vioxx.